Quarterly data for the years 1988-93 for the nominal federal funds interest rate and the output ratio show that the Fed
A)reacted to a high output ratio by raising the interest rate.
B)reacted to a high output ratio by lowering the interest rate.
C)reacted to low output ratios but not to high output ratios.
D)did not react to movements in the output ratio.

Question

Quizplus · Accepted Answer

The Federal Reserve (Fed) typically raises interest rates to cool down an overheating economy, which is indicated by a high output ratio. This action is taken to control inflation and stabilize economic growth.

Quarterly Data for the Years 1988-93 for the Nominal Federal