The target overnight rate should be positively related to the inflation rate and inversely related to the unemployment rate.

Question

Quizplus · Accepted Answer

This statement is consistent with the goals of monetary policy as set by many central banks, including the Federal Reserve. The target overnight rate is the interest rate at which banks lend and borrow funds from each other overnight, and it is a key tool for central banks to influence broader interest rates and the macroeconomy. In general, a higher inflation rate may warrant a higher target overnight rate to slow down consumer spending and reduce inflationary pressures, while a higher unemployment rate may warrant a lower target overnight rate to boost economic activity and reduce unemployment.

The Target Overnight Rate Should Be Positively Related to the Inflation