question 17

b. Lower interest rate may cause a large depreciation of the US dollar, and hence raise import prices and inflation. c. Lower interest rate may lead to asset-price bubble, raising the risk of a major eventual correction and its potential adverse effects on the economy. d. Lower interest rate may raise productivity growth that would eventually spark inflation. 17. The Fed uses the federal funds rate as the short-term monetary policy instrument to achieve the goals of price stability and full-employment output. And the Fed raises or cuts the federal funds rate (equivalently saying, decreases or increases money supply, respectively) through the Open Market Operation. In order to lower the interest rate, the Fed would need to Treasury bonds through the Open Market Operation. a. sell b. buy