The Fed (which is the central bank in the U.S.)greatly increased the monetary base in 2009 and 2010 by purchasing assets in an attempt to boost the economy,while making it known that they intended on selling these assets once the economy showed signs of stability,and at the same time keep a watchful eye on possible inflation.The Fed's inflation expectations would most likely be considered as ________,and the Fed was able to increase the monetary base without causing expected inflation to increase because their intentions and statements were generally considered ________.
A) adaptive; not credible
B) adaptive; credible
C) rational; not credible
D) rational; credible

Question

Quizplus · Accepted Answer

The Fed's inflation expectations would most likely be considered as rational since they were based on a careful analysis of economic data and trends. The Fed was able to increase the monetary base without causing expected inflation to increase because their intentions and statements were generally considered credible, as the market had faith in the Fed's ability to monitor and control inflation. Therefore, the correct choice is (D) rational; credible.

The Fed (Which Is the Central Bank in the U