If there is an increase in the price of oil and the Fed wishes to maintain price stability,what should it do?
A) Do nothing,because the self-correcting mechanism will adjust the economy
B) Sell bonds in the open market
C) Wait,because the price level seldom changes when there is an increase in the price of oil
D) Encourage firms to not adjust the wages they pay
E) Buy bonds in the open market.

Question

Quizplus · Accepted Answer

If there is an increase in the price of oil, it can lead to higher production costs for businesses, which can then lead to higher prices for goods and services. To maintain price stability, the Fed can sell bonds in the open market, which would reduce the amount of money in circulation and make borrowing more expensive. This can help to cool down inflationary pressures and stabilize prices.

If There Is an Increase in the Price of Oil