When the financial crisis started in August 2007,inflation was rising and the Fed began an aggressive easing lowering of the federal funds rate,which indicated that
A)the Fed pursued an autonomous monetary policy tightening.
B)the Fed pursued an autonomous monetary policy easing.
C)the Fed had an automatic negative response to inflation based on the Taylor rule.
D)the Fed had an automatic positive response to inflation based on the Taylor rule.

Question

Quizplus · Accepted Answer

The Fed began an aggressive easing, which means it pursued a monetary policy of lowering interest rates to stimulate economic growth and combat the effects of the financial crisis. This is the opposite of tightening, which would involve raising interest rates to combat inflation. Therefore, choice B is the correct answer. Choices C and D suggest that the Fed's response was automatic and based on the Taylor rule, which is not necessarily true. While the Taylor rule may have been a factor in the Fed's decision-making, it was not the only one. Choice A suggests that the Fed was pursuing a policy of tightening, which is incorrect.

When the Financial Crisis Started in August 2007,inflation Was Rising