According to the interest-rate-based transmission mechanism for monetary policy, a decrease in the money supply will cause the
A. interest rate to fall, causing planned real investment spending to rise and leading to a decrease in aggregate demand.
B. interest rate to rise, causing planned real investment spending to fall and leading to a decrease in aggregate demand.
C. interest rate to fall, causing planned real investment spending to rise and leading to an increase in aggregate demand.
D. interest rate to rise, causing planned real investment spending to rise and leading to a decrease in aggregate demand.
Answer: B
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When there is a recessionary gap, inflation will ________, in response to which the Federal Reserve will ________ real interest rates, and output will ________.
A. decline; lower; decline B. increase; raise; decline C. decline; lower; expand D. decline; raise; decline
A market has the following characteristics: There is strategic pricing, output is somewhat restricted, there is interdependent decision making, and some long-run economic profits are possible. This market is:
A. an oligopoly. B. monopolistically competitive. C. perfectly competitive. D. a monopoly.
Exhibit 8-2 Consumption function
As shown in Exhibit 8-2, dissaving occurs:
A. at $5 trillion. B. between 0 and $4 trillion. C. where disposable income is greater than $4 trillion. D. at $8 trillion.
Figure 14.4 represents the market for used 12 megapixel digital cameras. Suppose buyers are willing to pay $400 for a plum (high-quality) used digital camera and $200 for a lemon (low-quality) used digital camera. If buyers believe that 50% of used digital cameras in the market are lemons (low quality), what percent of used digital cameras sold will actually be lemons?
A. 25% B. 50% C. 75% D. 100%