The Fed hopes to impact short-run inflation and output by altering:
A)The production function
B)Aggregate supply
C)Aggregate demand
D)Fiscal policy

Question

Quizplus · Accepted Answer

The Fed can impact short-run inflation and output by altering aggregate demand through monetary policy tools like interest rates, reserve requirements, and open market operations. By increasing interest rates, for example, the Fed can decrease spending and decrease inflation in the short run. Conversely, by lowering interest rates, they can stimulate spending and increase output and inflation in the short run.

The Fed Hopes to Impact Short-Run Inflation and Output by Altering