Re:39-1
(Figure: Short-Run and Long-Run Effects of Monetary Policy) Refer to the information in the figure Short-Run and Long-Run
Effects of Monetary Policy. If the economy is initially at E2 and the central bank makes no change in its monetary policy:
A. SRAS2 will immediately shift to the right, increasing the existing inflationary gap.
B. AD2 will shift to the right, increasing the existing inflationary gap.
C. AD2 will shift to the left, closing the inflationary gap.
D. SRAS1 will eventually shift to the left, closing the existing inflationary gap but raising the aggregate price level.
Question 43
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If actual output is equal to potential output and the Fed decreases the money supply, in the short run the likely result will be
a(n) ______ in investment and a(n) ______ in consumption.
A. increase; increase
B. decrease; decrease
C. increase; decrease
D. decrease; increase
Question 44
Monetary policy that increases the demand for goods and services is known as ______ monetary policy.
A. contractionary
B. inflationary
C. quantitative
D. expansionary
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Question 45
Expansionary monetary policy:
A. decreases the money supply, increases interest rates, and decreases consumption and investment.
B. increases the money supply, decreases interest rates, and increases consumption and investment.
C. increases the money supply, interest rates, consumption, and investment.
26
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