When we raise the federal funds rate by 2 percent for every 1 percent increase in the inflation rate,this is an example of:
A)a fiscal policy rule.
B)a monetary policy rule.
C)discretionary monetary policy.
D)discretionary fiscal policy.
E)none of the above

Question

Quizplus · Accepted Answer

The described policy of raising the federal funds rate in response to inflation is an example of a monetary policy rule. Fiscal policy refers to government spending and taxation, while monetary policy relates to the actions of the central bank in managing the money supply and interest rates. The described policy is not discretionary, as it follows a predetermined rule rather than being based on the judgment of policymakers.

When We Raise the Federal Funds Rate by 2 Percent