Question

If the Federal Reserve estimates that the economy is operating at an employment level above full employment. It would be concerned about which of the following:

		inflation falling below 2%
		unemployment being to high
		inflation increasing above 2%
		it would not be concerned - the situation is consistent with it's dual mandate

Monetary policy is made by _______________ and its decisions change __________________.

		the Treasury Department, prime interest rate
		the Treasury Department, federal funds interest rate
		the FOMC, federal funds interest rate
		Congress, tax rate

Answer 1

1. If the Federal Reserve estimates that the economy is operating at an employment level above full employment then it would lead to the inflation in the economy. As the equilibrium level is higher than its original equilibrium which means price level is higher in the economy. Therefore, inflation increasing above 2%. Option C is correct.

2. Monetary policy is made by the central bank and the Department of the Treasury is the national treasury of the federal government of the United States. Monetary policy decision effects the prime interest rate as it is an interest rate which used by banks to lend money to its customers with good credit. As if there is more money in the economy, then less interest has been charge and vice versa. Option A is correct.