ECONOMICS
MONETARY POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Because the Fed has to follow direction from the President and that have iit approved by congress.
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The effects of the Fed’s policies take time and are not always felt right away.
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Either A or B
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None of the above
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Detailed explanation-1: -There are two possible reasons why monetary policy may be less effective at persistently low rates: (i) headwinds resulting from the economic context; and (ii) inherent nonlinearities linked to the level of interest rates.
Detailed explanation-2: -An increase in the federal funds rate typically causes other market interest rates to rise, which damps consumer and business spending, slowing economic activity and reducing inflationary pressure. The interest rate paid on excess reserves acts like a floor beneath the federal funds rate.
Detailed explanation-3: -What timing difficulties does the Fed face in using its monetary policy tools? The Fed’s inability to observe instantaneously changes in GDP, inflation, or other economic variables is referred to as the information lag.
Detailed explanation-4: -The primary problem for using monetary policy to stabilize the economy is the risk of inflation. For instance, when the central bank issues more money to encourage investment during recession periods, it increases the chances of inflation in an economy.