Quick 10 PTS, Assume that oil prices decline, What kind of Monetary Policy should the Fed undertake if its...?

Question

goal is to stabilize the level of output while keeping inflation low??

How would the adjustment look like?

Answer 1

There is required some limited protection from deflation, so contractionary monetary policy would do this job well.

Answer 2

Expansionary or contractionary monetary policy might not be required. Inflation would have to be monitored. Fiscal policy eg cutting or increasing taxes could also be a possibility depending on the circumstances.

Answer 3

DDUUHHHHHH.......you make 'em big talk!