Economics [Related to the Making the Connection] At an August 2011 meeting of the FOMC, three Federal Reserve Bank presidents publicly dissented from a decision to maintain the federal funds rate at a near-zero level through 2013. (At a later meeting the date was extended through mid-2015.) The dissents were notable because FOMC members have typically voted unanimously on interest rate decisions. One of the dissenting votes came from Narayana Kocherlakota, the president of the Federal Reserve Bank of Minneapolis, who explained that he favored low interest rates but objected to the Fed making a commitment to maintain low rates over a specific period of time. He stated that the decision would make it more difficult to maintain the Fed's commitment to keep the rate of inflation from exceeding its target of 2%. Source: Brad Allen, "Kocherlakota's Priority: Federal Reserve Transparency," Minnpost.com, February 15, 2012. Kocherlakota's reasoning may have been that A. a prolonged period of low interest rates would fuel higher inflation by stimulating aggregate expenditures. B. a lengthy commitment to low rates would preclude Fed action to tighten monetary policy in response to an increase in the inflation rate. C. low and stable inflation is incompatible with low and stable interest rates. D. All of the above are correct.
Economics [Related to the Making the Connection] At an August 2011 meeting of the FOMC, three Federal Reserve Bank presidents publicly dissented from a decision to maintain the federal funds rate at a near-zero level through 2013. (At a later meeting the date was extended through mid-2015.) The dissents were notable because FOMC members have typically voted unanimously on interest rate decisions. One of the dissenting votes came from Narayana Kocherlakota, the president of the Federal Reserve Bank of Minneapolis, who explained that he favored low interest rates but objected to the Fed making a commitment to maintain low rates over a specific period of time. He stated that the decision would make it more difficult to maintain the Fed's commitment to keep the rate of inflation from exceeding its target of 2%. Source: Brad Allen, "Kocherlakota's Priority: Federal Reserve Transparency," Minnpost.com, February 15, 2012. Kocherlakota's reasoning may have been that A. a prolonged period of low interest rates would fuel higher inflation by stimulating aggregate expenditures. B. a lengthy commitment to low rates would preclude Fed action to tighten monetary policy in response to an increase in the inflation rate. C. low and stable inflation is incompatible with low and stable interest rates. D. All of the above are correct.
Macroeconomics: Principles and Policy (MindTap Course List)
13th Edition
ISBN:9781305280601
Author:William J. Baumol, Alan S. Blinder
Publisher:William J. Baumol, Alan S. Blinder
Chapter13: Monetary Policy: Conventional And Unconventional
Section: Chapter Questions
Problem 7DQ
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![Economics
[Related to the Making the Connection] At an August 2011 meeting of the FOMC, three Federal Reserve
Bank presidents publicly dissented from a decision to maintain the federal funds rate at a near-zero level
through 2013. (At a later meeting the date was extended through mid-2015.) The dissents were notable
because FOMC members have typically voted unanimously on interest rate decisions. One of the
dissenting votes came from Narayana Kocherlakota, the president of the Federal Reserve Bank of
Minneapolis, who explained that he favored low interest rates but objected to the Fed making a commitment
to maintain low rates over a specific period of time. He stated that the decision would make it more difficult
to maintain the Fed's commitment to keep the rate of inflation from exceeding its target of 2%.
Source: Brad Allen, "Kocherlakota's Priority: Federal Reserve Transparency," Minnpost.com, February 15,
2012.
Kocherlakota's reasoning may have been that
A. a prolonged period of low interest rates would fuel higher inflation by stimulating aggregate
expenditures.
B. a lengthy commitment to low rates would preclude Fed action to tighten monetary policy in
response to an increase in the inflation rate.
C. low and stable inflation is incompatible with low and stable interest rates.
D. All of the above are correct.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff50ad966-eb0e-4eba-82c3-90556bd5e6dc%2F7f6327e2-b595-4a5e-ad60-072c89ae0fae%2Fhx5o1x_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Economics
[Related to the Making the Connection] At an August 2011 meeting of the FOMC, three Federal Reserve
Bank presidents publicly dissented from a decision to maintain the federal funds rate at a near-zero level
through 2013. (At a later meeting the date was extended through mid-2015.) The dissents were notable
because FOMC members have typically voted unanimously on interest rate decisions. One of the
dissenting votes came from Narayana Kocherlakota, the president of the Federal Reserve Bank of
Minneapolis, who explained that he favored low interest rates but objected to the Fed making a commitment
to maintain low rates over a specific period of time. He stated that the decision would make it more difficult
to maintain the Fed's commitment to keep the rate of inflation from exceeding its target of 2%.
Source: Brad Allen, "Kocherlakota's Priority: Federal Reserve Transparency," Minnpost.com, February 15,
2012.
Kocherlakota's reasoning may have been that
A. a prolonged period of low interest rates would fuel higher inflation by stimulating aggregate
expenditures.
B. a lengthy commitment to low rates would preclude Fed action to tighten monetary policy in
response to an increase in the inflation rate.
C. low and stable inflation is incompatible with low and stable interest rates.
D. All of the above are correct.
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