In response to an unanticipated easing 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

An unanticipated easing of monetary policy would lead to a decrease in the Fed funds rate initially in order to stimulate economic activity. However, over the course of 6 to 12 months, as the economy picks up and inflation concerns arise, the Fed may increase the Fed funds rate again, leading it to return most of the way to its original value. Therefore, option B is the most appropriate answer.

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