If the Fed decided to target price levels and inflation was lower than its target for a period of time, the Fed would be required to
A) temporarily raise inflation above its target to reach its price level target.
B) temporarily lower its inflation target to match its price level target.
C) permanently lower its price level target to align it with the inflation rate.
D) permanently raise inflation above its target to reach and maintain its price level target.

Question

Quizplus · Accepted Answer

If the Fed decided to target price levels and inflation was lower than its target for a period of time, the most appropriate course of action would be to temporarily raise inflation above its target to reach its price level target. This is because raising inflation can lead to an increase in prices and eventually help the economy to reach the desired price level.

If the Fed Decided to Target Price Levels and Inflation