Which of the following characterizes the Fed's ability to prevent recessions?
A)The Fed is able to "fine tune" the economy and entirely eliminate recessions.
B)The Fed is incapable of changing aggregate demand through its monetary policy tools.
C)The Fed is able to keep a recession shorter and milder than it would otherwise be.
D)The Fed is able to eliminate the business cycle and achieve absolute price stability.

Question

Quizplus · Accepted Answer

The Fed has the ability to influence aggregate demand through its monetary policy tools, but it cannot completely eliminate recessions. However, it can use these tools to mitigate the severity and length of a recession. Thus, option C is the correct answer. Option A and D are incorrect because the Fed cannot completely eliminate recessions and achieve absolute price stability. Option B is also incorrect because the Fed's monetary policy tools can affect aggregate demand.

Which of the Following Characterizes the Fed's Ability to Prevent