V1 What is the likely outcome if the Fed seeksto maintain a federal funds rate of 0% evenwhen the economy is strong?Group of answer choicesA)deflation would be likely to occurB)unemployment is likely to increase toomuch in the short termC)other short-term interest rates are likelyto increase since they are not correlatedwith the federal funds rateD)though GDP may exceed its potentialtemporarily due to excessive borrowing andspending, such growth is not sustainable

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What is the likely outcome if the Fed seeks to maintain a federal funds rate of 0% even when the economy is strong?

Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter34: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 4CQQ

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Question

What is the likely outcome if the Fed seeks
to maintain a federal funds rate of 0% even
when the economy is strong?
Group of answer choices
A)deflation would be likely to occur
B)unemployment is likely to increase too
much in the short term
C)other short-term interest rates are likely
to increase since they are not correlated
with the federal funds rate
D)though GDP may exceed its potential
temporarily due to excessive borrowing and
spending, such growth is not sustainable

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