Suppose the Fed\\\'s primary goal is price stability and it aims to keep the inf

Question

Suppose the Fed's primary goal is price stability and it aims to keep the inflation rate at 2%. If the inflation rate rose above 2%, what should it do?

pursue an expansionary monetary policy

pursue a contractionary monetary policy

reduce the required reserve ratio

impose a temporary ceiling on the federal funds rate

Government tax and expenditure policies affect real GDP are called

automatic fiscal policy.

discretionary fiscal policy.

fiscal policy.

supply-side policy.

pursue an expansionary monetary policy

pursue a contractionary monetary policy

reduce the required reserve ratio

impose a temporary ceiling on the federal funds rate

Explanation / Answer

pursue a contractionary monetary policy

As by contractionary monetary policy , Fed can decrease the money supply and hence inflation.

2. automatic fiscal policy

As effect the GDP on its own to bring it back to the equilibrium

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