If the Federal Reserve Announces That Its Target for the Federal

question 209

Multiple Choice

If the Federal Reserve announces that its target for the federal funds rate is falling from 3 percent to 2.25 percent,how do you expect workers and firms to react?

• A)As long as the Fed's announcement is credible,workers and firms will decrease their consumption and investment spending,which will decrease aggregate demand and inflation.
• B)As long as the Fed's announcement is credible,workers and firms will increase their consumption and investment spending,which will increase aggregate demand and inflation.
• C)If the Fed's announcement is not credible,workers and firms will not expect inflation to rise so they will increase their consumption and investment spending,which will decrease aggregate demand and increase inflation.
• D)Workers and firms will incorporate the decrease in interest rates into their expectations of inflation,and they will expect inflation to fall as a result of Fed's policy announcement.

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