Suppose the Fed Announces That It Expects Interest Rates to Fall

question 107

Multiple Choice

Suppose the Fed announces that it expects interest rates to fall in the next quarter. What happens to the demand for money today?

• A) The precautionary demand for money goes up.
• B) The speculative demand for money goes up.
• C) The transaction demand for money goes down.
• D) The speculative demand for money goes down.

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Definitions:

Economic Growth

An increase in the production of goods and services in an economy over a period of time, typically measured by GDP.

Real GDP Per Person

The inflation-adjusted value of goods and services produced per individual in a country.

Real GDP Per Person

A measure of the value of all finished goods and services produced within a country in a specific time period, adjusted for inflation, divided by the total population.

Productivity

The measure of efficiency in which goods and services are produced, typically reflected by the quantity produced per unit of input.