When the Fed Uses Contractionary Policy

question 141

Multiple Choice

When the Fed uses contractionary policy

• A)the price level rises higher than it would if the Fed did not pursue policy.
• B)the price level rises less than it would if the Fed did not pursue policy.
• C)it does not change the price level.
• D)it causes inflation.

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Definitions:

Time Inconsistency

The phenomenon where a person's preferences change over time, such that what is preferred in the future is inconsistent with what is preferred now, often leading to planning and decision-making challenges.

Behavioral Economists

Researchers who study the psychological, cognitive, emotional, cultural, and social factors that affect the economic decisions of individuals and institutions.

Endowment Effect

A cognitive bias where individuals value an owned object higher than its market value simply because they own it.

Anchoring Effect

A cognitive bias in decision-making where individuals rely too heavily on the first piece of information (the "anchor") offered when making decisions.