Question

The strongest argument for an independent Federal Reserve rests on the view that subjecting the Fed to more political pressures would imparta. an inflationary bias to monetary policy.b. a disinflationary bias to monetary policy.c. a deflationary bias to monetary policy.d. a countercyclical bias to monetary policy.

Answer 1

Answer:

A) an inflationary bias to monetary policy.

Explanation:

Inflationary bias refers to a situation where monetary policy results in a higher inflation rate.

If the executive branch of the government was responsible for setting monetary policy, then they could be tempted to act according to electoral pressures like lowering unemployment rates or increasing the nominal growth of the GDP. The problem with this happening is that nothing is for free and if the monetary base is artificially increased for short term benefits, in the long run the whole economy will suffer due to higher inflation rates.