In counteracting demand shocks,the Fed can achieve:
A) price stability but not full employment.
B) both full employment and price stability.
C) full employment but not price stability.
D) neither full employment nor stable prices.

Question

Quizplus · Accepted Answer

In countering demand shocks, the Fed aims to stabilize the economy by managing the money supply and interest rates. By doing so, the Fed can achieve both full employment and price stability. When the Fed increases the money supply, it lowers interest rates which encourages investment and increases aggregate demand, leading to increased economic growth and higher employment levels. Price stability is also achieved as the increase in demand of goods and services is met by a corresponding increase in supply, thereby limiting inflation. Therefore, the best choice is B.

In Counteracting Demand Shocks,the Fed Can Achieve