The lag between changes in the Fed's interest rate target and large responses of output means that the Fed may want to ________ interest rates ________ output recovers to its natural level.
A)raise,after
B)lower,before
C)raise,before
D)lower,after

Question

Quizplus · Accepted Answer

The lag between changes in the Fed's interest rate and output means that it may take some time before the change affects the economy. Therefore, the Fed may want to raise interest rates before output recovers to its natural level to prevent inflationary pressures from building up.

The Lag Between Changes in the Fed's Interest Rate Target