If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it,________.
A)it would likely conduct an easing of monetary policy by raising the real interest rate for any given inflation rate
B)it would likely conduct a tightening of monetary policy by raising the real interest rate for any given inflation rate
C)it would likely conduct an easing of monetary policy where the real interest rate would increase due to the ensuing decrease in aggregate demand
D)it would likely conduct a tightening of monetary policy where the real interest rate would increase due to the ensuing increase in aggregate demand
E)none of the above

Question

Quizplus · Accepted Answer

Raising the inflation target would more likely lead to an easing of monetary policy to stimulate higher inflation, but this would typically involve lowering real interest rates, not raising them, to encourage borrowing and spending. None of the provided options accurately describe this scenario.

If the Economy Is in a Long-Run Equilibrium When the Federal