Since the mid-1980s, the primary indicator of monetary policy has been
A) movement of short-term interest rates.
B) the growth rate of real government expenditures.
C) the growth of the M1 money supply.
D) changes in the nominal (dollar) size of budget deficits or surpluses.

Question

Quizplus · Accepted Answer

Since the mid-1980s, the primary indicator of monetary policy has been the movement of short-term interest rates. The Federal Reserve adjusts the federal funds rate, which is the interest rate that banks charge each other for overnight loans, to influence borrowing and spending in the economy. When the Fed raises interest rates, it makes borrowing more expensive, which can slow down economic growth and inflation. Conversely, when the Fed lowers interest rates, it makes borrowing cheaper, which can stimulate economic activity. Therefore, tracking the movement of short-term interest rates is a key way to understand the stance of monetary policy.

Since the Mid-1980s, the Primary Indicator of Monetary Policy Has