Concerned about low inflation, Federal Reserve Bank of Minneapolis President Nar

Question

Concerned about low inflation, Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said the Fed needed a more aggressive stimulus policy than the setting of near-zero interest rates, and added that negative interest rates could be an effective policy tool. In a September 2015 interview, Kocherlakota stated "Given the inflation outlook, given how low inflation is expected to be, to ensure the credibility of our inflation target, taking a more accommodative stance in September would have been totally justified." While the Federal Open Market Committee chose to hold rates near zero in their September 2015 meeting, Fed Chair Janet Yellen announced that a rate increase would be warranted by the end of the year, and that "negative interest rates was not something that we considered very seriously at all today."

Source: Alister Bull, "Kocherlakota Says Low Inflation Warrants Further Fed Stimulus," bloomberg.com, October 3, 2015.

Refer to the Article

Summary.

Implementing a negative interest rate policy, as was advocated by the president of the Federal Reserve Bank of Minneapolis, would be designed to ________ the price level and ________ real GDP.

A.

decrease; increase

B.

decrease; decrease

C.

increase; increase

D.

increase; decrease

Explanation / Answer

Implementing a negative interest rate policy, as was advocated by the president of the federal reserve bank of minneapolis, would be designed to decrease the price level and increase real GDP.

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