If the Monetary Growth Rate Is Far Above the Target

question 28

Multiple Choice

If the monetary growth rate is far above the target range previously announced by the central bank, financial markets will assume that

• A)the central bank will reduce money supply in the near future, which may push up interest rates
• B)the rate of inflation will increase soon, which may lead to higher nominal interest rates
• C)anticipation of higher inflation will increase the demand for credit from firms or households and this will push up interest rates
• D)all of these are possible
• E)none of these are possible

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Definitions:

Credit

An accounting entry that increases a liability or equity account, or decreases an asset or expense account; also refers to the provision of resources based on a trust agreement.

Sales Tax

A tax imposed by governments on the sale of goods and services.

Total Revenue

The entire amount of income generated by the sale of goods, services, or other financial assets before any deductions are made.

Culture of Poverty

A concept in social theory that suggests that poverty is not a result of individual inadequacies but is instead the outcome of a larger social and cultural atmosphere that perpetuates and sustains poverty.