The Fed's interest rate decisions depend on the level of
A)investment and the level of inflation.
B)investment and the level of potential GDP.
C)real GDP and the level of potential GDP.
D)potential GDP and the level of inflation.
E)inflation and the output gap.

Question

Quizplus · Accepted Answer

The Fed's interest rate decisions depend on inflation and the output gap. The output gap is the difference between the actual GDP and potential GDP, so it is indirectly related to potential GDP, but the primary factor that impacts interest rate decisions is the level of inflation and its impact on the economy. The Fed aims to maintain low and stable inflation, and adjusts interest rates accordingly to achieve this goal.

The Fed's Interest Rate Decisions Depend on the Level of