Traditionally, the Fed often communicated its intentions to restrict or expand monetary policy by announcing a change in its target for the:
A) Prime rate
B) Federal funds rate
C) Discount rate
D) Consumer price index

Question

Quizplus · Accepted Answer

The Federal Reserve has traditionally communicated its intentions to restrict or expand monetary policy by announcing a change in its target for the federal funds rate. This is the rate at which banks borrow and lend reserves overnight with each other. A change in the federal funds rate influences other interest rates in the economy, such as consumer loans and mortgages, and can affect borrowing and spending decisions by households and businesses. The prime rate and discount rate are also important interest rates, but they are not used as a primary tool for monetary policy by the Fed. The consumer price index is a measure of inflation and is used as an indicator of the need for monetary policy changes, but it is not a target for the Fed's policy actions.

Traditionally, the Fed Often Communicated Its Intentions to Restrict or Expand