If the Fed can communicate that it will maintain a(n)________ for a long period of time,the long-term nominal interest rate will remain ________.
A) contractionary monetary policy; low
B) expansionary monetary policy; low
C) contractionary fiscal policy; high
D) expansionary fiscal policy; low

Question

Quizplus · Accepted Answer

If the Fed communicates that it will maintain an expansionary monetary policy (such as keeping interest rates low) for a long period of time, the long-term nominal interest rate will remain low. Conversely, if the Fed communicates a contractionary monetary policy (such as increasing interest rates), the long-term nominal interest rate will increase. Fiscal policy (choices C and D) is also important for the overall economy, but the question specifically asks about the Fed's communication and its impact on the long-term nominal interest rate.

If the Fed Can Communicate That It Will Maintain A(n)________