A decrease in a broad index of commodity prices suggests to the Fed that
A) money is plentiful, and the Fed should conduct restrictive policy.
B) money is plentiful, and the Fed should conduct expansionary policy.
C) deflation is a potential future danger, and the Fed should conduct expansionary policy.
D) future prices will likely increase, and the Fed should conduct expansionary policy.

Question

Quizplus · Accepted Answer

A decrease in a broad index of commodity prices suggests a potential future danger of deflation, which means a decrease in overall prices. In this situation, the Fed should conduct expansionary policy to stimulate the economy and prevent deflation from taking hold.

A Decrease in a Broad Index of Commodity Prices Suggests