In the Money Channel, the Main Way in Which an Expansionary

question 16

Multiple Choice

In the money channel, the main way in which an expansionary monetary policy increases output in the short run is by

• A)lowering the real interest rate, which increases spending by households and firms.
• B)directly increasing the funds available for households and firms to spend.
• C)increasing the ability of banks to make loans.
• D)increasing the funds available for government spending.

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Definitions:

Socially-Optimal Quantity

The level of production or consumption of a good that leads to the maximum welfare for society, considering both benefits and costs.

Market-Equilibrium

A state where the quantity of goods supplied equals the quantity of goods demanded, resulting in a stable price.

Negative Externality

A cost that is suffered by a third party due to an economic transaction that they were not involved in.

Well-Being

The state of being comfortable, healthy, or happy, reflecting the overall quality of a person's life.