If there is a decrease in world oil prices and the Fed wishes to maintain output stability,what should it do?
A) Buy bonds in the open market.
B) All the economy to adjust itself.
C) Sell bonds in the open market.
D) Impose higher taxes to counteract the supply shock.
E) Lower taxes to maintain output.

Question

Quizplus · Accepted Answer

When world oil prices decrease, it can lead to lower inflationary pressures. To maintain output stability, the Fed might sell bonds to reduce the money supply, preventing the economy from overheating due to lower oil prices.

If There Is a Decrease in World Oil Prices and the Fed