When the Fed Believes That Inflation Is a Problem, It

question 39

Multiple Choice

When the Fed believes that inflation is a problem, it will use _____ policy to decrease the money supply and raise interest rates.

• A) inflation policy
• B) contractionary policy
• C) deflation policy
• D) recession policy

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Definitions:

Capital Goods

Long-term assets such as machinery, buildings, and equipment purchased by companies to produce goods and services.

Consumer Goods

Consumer goods are products bought by individuals or households for personal use, such as clothing, food, and household items.

International Specialization

The practice of countries focusing on the production of goods and services for which they have a comparative advantage, leading to trade.

Production Possibilities Curve

A graphical representation that shows the maximum combination of goods and services that can be produced by an economy, given its available resources and technology.