All of the following help provide the basis for the Fed controlling the real interest rate in the IS-MP model EXCEPT
A) the Fed controls the federal funds rate through open market operations.
B) if expected future inflation remains stable, changes in nominal interest rates reflect changes in real interest rates.
C) short-term and long-term interest rates tend to move together.
D) the Fed's increased use of TIPS in conducting monetary policy.

Question

Quizplus · Accepted Answer

The increased use of TIPS in conducting monetary policy may improve accuracy in measuring inflation expectations, but it does not directly impact the Fed's ability to control the real interest rate through the federal funds rate, the relationship between nominal and real interest rates, and the correlation between short-term and long-term interest rates.

All of the Following Help Provide the Basis for the Fed