What actions should the Fed take if it believes the economy is about to experience a high rate of inflation?
What will be an ideal response?
If the Fed believes the economy is about to experience a high rate of inflation, it should conduct contractionary monetary policy, decreasing the money supply and raising interest rates. In implementing contractionary monetary policy, the Fed could raise the discount rate, raise the reserve requirement, and/or have the trading desk sell U.S. Treasury securities.
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Consider the following data for a closed economy:
a. Y = $12 trillion b. C = $8 trillion c. I = $3 trillion d. TR = $2 trillion e. T = $3 trillion Use the data provided to calculate the level of private saving and the level of public saving and demonstrate their relationship to investment.
Which of the following statements are NOT true about Eurocurrency markets?
A) Covered interest arbitrage in Eurocurrency markets is typically very profitable. B) Eurocurrency interest rate differentials are often in equilibrium with forward premiums or discounts. C) The Eurocurrency markets and forward markets fulfill similar roles for banks and firms today. D) All of these statements about Eurocurrency markets are true.