In Some Financial Panics, an Unanticipated Drop in the Price

question 32

Multiple Choice

In some financial panics, an unanticipated drop in the price level led to declining investment because the lower price level

• A)resulted in higher nominal interest rates.
• B)raised the real value of firms' debt obligations.
• C)reduced the real value of consumers' financial wealth.
• D)reduced the real value of expected future profits.

---

Definitions:

Money Supply

The complete sum of available financial resources in an economy, including cash, coins, and the funds available in checking and savings accounts, at a particular instant.

Inflationary Tendencies

The general tendencies or trends towards increasing prices and diminishing purchasing power over time within an economy.

Federal Reserve

The central banking system of the United States, responsible for monetary policy, regulation of financial institutions, and ensuring stability of the financial system.

Recovery

Phase of business cycle during which real GDP increases from trough level to level of previous peak.