Question 1

According to the textbook, monetary policymaking is most accurately described as:
A)a science due to detailed models used.
B)an art since human judgments are necessary.
C)superior to other policies, since it is conducted by economists.
D)both an art and a science.

Accepted Answer

In practice it appears that monetary policymaking is both an art and a science, as both scientific analyses and human judgment based on long experience are used.

Question 2

Since the Fed faces uncertainty regarding effects of its policies, the Fed usually proceeds:
A)forcefully to ensure a desired effect.
B)only after fiscal policy polices have been enacted.
C)cautiously with only small changes in the interest rate.
D)only after a recession is statistically proven to exist.

Accepted Answer

Because of uncertainties regarding the effect of a given change in the real interest rate on spending the Fed tends to proceed cautiously. To avoid large changes in interest rates, the federal funds rate is rarely changed more than one-half of a percentage point (from 5.50 percent to 5.00 percent, for example)at any one time.

Quiz 26: Stabilizing the Economy: The Role of the Fed

According to the textbook, monetary policymaking is most accurately described as:

Since the Fed faces uncertainty regarding effects of its policies, the Fed usually proceeds: