To determine whether the goal of stable prices is being achieved, the Federal Reserve monitors the ________; to determine whether the goal of maximum employment is being achieved, the Federal Reserve monitors ________.
A) core CPI inflation rate; the natural unemployment rate
B) CPI; the gap between nominal GDP and real GDP
C) core GDP deflator inflation rate; the natural unemployment rate
D) core PCE deflator inflation rate; the output gap
E) GDP price deflator; real GDP

Question

Quizplus · Accepted Answer

The Federal Reserve considers the core PCE deflator inflation rate as a measure of stable prices, and the output gap as a measure of maximum employment. Therefore, option D is the correct choice. Option A is incorrect as it refers to core CPI, which is not the measure used by the Fed. Option B is incorrect as it refers to only one measure of GDP (nominal GDP) while the Fed considers both nominal and real GDP. Option C is incorrect as it refers to core GDP deflator rather than PCE deflator. Option E is incorrect as it refers to only one measure of GDP (real GDP) while the Fed considers both nominal and real GDP.

To Determine Whether the Goal of Stable Prices Is Being