When the Fed responds to a negative spending shock by increasing the money supply,it is using:
A) a policy rule.
B) a discretionary policy.
C) its political power.
D) its credibility.

Question

Quizplus · Accepted Answer

Increasing the money supply in response to a negative spending shock is an example of discretionary policy, as the Fed is making an active decision to respond to the economic situation rather than following a predetermined policy rule. This decision is based on the Fed's assessment of the situation and its goals for the economy, as opposed to any political power or credibility considerations.

When the Fed Responds to a Negative Spending Shock by Increasing