If the Monetary Growth Rate Is Far Above the Target

question 6

Multiple Choice

If the monetary growth rate is far above the target range previously announced by the Fed, financial investors are likely to assume that future interest rates will increase since

• A)the Fed is likely to reduce money supply soon
• B)inflation will start to increase
• C)borrowing will increase in anticipation of higher inflation
• D)all of these are possible
• E)none of these are possible

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Definitions:

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, expressed as a percentage change.

Demand Function

A mathematical expression that shows the relationship between the quantity of a good consumers are willing to buy and its price.

Price Elasticity

The measure of how much the quantity demanded or supplied of a good changes in response to a change in its price.

Price Doubles

A situation where the price of a good, service, or commodity increases to twice its previous level, affecting supply and demand dynamics.