Causes and Impact of Inflation Quick Check

Question

5 of 55 of 5 Items
Question
The rate of inflation in a hypothetical economy is projected to be 1.5%
in the coming quarter. Given this information, the Federal Reserve is likely to _____.(1 point)
Responses

make efforts to lower the inflation rate because 1.5%
is greater than the desired rate of inflation
make efforts to lower the inflation rate because 1.5 percent is greater than the desired rate of inflation

take no action because 1.5%
is the ideal inflation rate
take no action because 1.5 percent is the ideal inflation rate

make efforts to raise the inflation rate because 1.5%
is below the desired rate of inflation
make efforts to raise the inflation rate because 1.5 percent is below the desired rate of inflation

make efforts to maintain the inflation rate because 1.5%
is the desired rate of inflation

Answer 1

The correct response would be:

make efforts to raise the inflation rate because 1.5% is below the desired rate of inflation.

Typically, central banks, including the Federal Reserve, aim for a target inflation rate around 2%. If the projected rate is below this target, they may take actions such as lowering interest rates to encourage spending and investment, thereby attempting to increase the inflation rate to their desired level.