When the Fed unexpectedly reduces the money supply, it will cause a decrease in aggregate demand because
a. real interest rates will rise, lowering business investment and consumer spending.
b. the dollar will depreciate on the foreign exchange market, leading to an increase in net exports.
c. lower interest rates will cause the value of assets (for example, stocks) to rise.
d. the national debt will increase, causing consumers to reduce their spending.
A
You might also like to view...
Suppose the government currently places tariffs and/or other import restrictions on good X. Will imposing a tariff and/or trade restriction on good Y necessarily reduce overall social welfare for the economy?
What will be an ideal response?
Why is the Chairman of the Federal Reserve often referred to as the "second most powerful person in the United States?"
What is microfinance, and how can it contribute to economic growth?
What will be an ideal response?
The fiscal shock in Germany due to reunification caused the Bundesbank to pursue a monetary policy that:
A) was appropriate for Britain, since it had experienced a similar shock. B) was appropriate for all the other ERM nations but not Britain. C) was appropriate only for Germany, since neither Britain nor other ERM nations experienced a similar shock. D) had poor timing, since the monetary action should have come before the reunification.