Fed Policy Procedures: Historical Perspective
1) High inflation can spiral out of control when
A) expected inflation increases nominal interest rates, causing the Fed to buy bonds, increasing the money supply and further increasing inflation.
B) expected inflation decreases nominal interest rates, causing the Fed to buy bonds, increasing the money supply and further increasing inflation.
C) expected inflation increases nominal interest rates, causing the Fed to sell bonds, increasing the money supply and further increasing inflation.
D) expected inflation decreases nominal interest rates, causing the Fed to sell bonds, increasing the money supply and further increasing inflation.
2) In practice, the Fed”s policy of targeting money market conditions in the 1960s proved to be
A) countercyclical, helping to stabilize the economy.
B) procyclical, destabilizing the economy.
C) procyclical, helping to stabilize the economy.
D) countercyclical, destabilizing the economy.
3) In practice, the Fed”s policy of targeting ________ in the 1960s proved to be ________, destabilizing the economy.
A) money market conditions; countercyclical
B) money market conditions; procyclical
C) monetary aggregates; countercyclical
D) monetary aggregates; procyclical