If the Fed adopts an expansionary policy that is based on a misreading of the current economy, the Fed may be _____
A) lowering the federal funds rate when a more appropriate course would be to raise it.
B) lowering the federal funds rate when a more appropriate course would be to lower it.
C) raising the federal funds rate when a more appropriate course would be to raise it.
D) raising the federal funds rate when a more appropriate course would be to lower it.
E) raising the federal funds rate when a more appropriate course would be to leave it unchanged.

Question

Quizplus · Accepted Answer

If the Fed adopts an expansionary policy based on a misreading of the current economy, it may lower the federal funds rate when a more appropriate course would be to raise it. This can lead to an increase in inflation and potentially create an economic bubble.

If the Fed Adopts an Expansionary Policy That Is Based