In response to an unanticipated tightening of monetary policy,the Fed funds rate ________ at first,then ________ after 6 to 12 months.
A)rises; returns most of the way to its original value
B)falls; returns most of the way to its original value
C)remains roughly unchanged; rises significantly
D)remains roughly unchanged; falls significantly

Question

Quizplus · Accepted Answer

When there is an unanticipated tightening of monetary policy, the Fed funds rate initially rises to control inflation. However, after 6 to 12 months, the economy adjusts to the new policy, and the Fed funds rate returns most of the way to its original value. Thus, choice A is the best option.

In Response to an Unanticipated Tightening of Monetary Policy,the Fed