If the Fed reduces the inflation rate from 5% to 3%, it is:

Question

Quizplus · Accepted Answer

Reducing the inflation rate from 5% to 3% is known as disinflation, which involves slowing down the rate of price increases. It is a policy tool used by the Fed to maintain price stability in the economy. Therefore, option (B) is the correct answer. Option (A) is incorrect because following a policy rule involves adopting and adhering to a predetermined set of guidelines. Option (C) is incorrect because reducing inflation does not necessarily increase employment. Option (D) is incorrect because reducing inflation does not necessarily raise economic growth.

If the Fed Reduces the Inflation Rate from 5% to 3