Which of the Following Is a Potential Operating Instrument for the Central

question 23

Multiple Choice

Which of the following is a potential operating instrument for the central bank?

• A) The monetary base
• B) The M1 money supply
• C) GDP
• D) The Bank rate

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Definitions:

Law of Diminishing Returns

A principle stating that if one factor of production is increased while others remain constant, the overall returns will eventually decrease after a certain point.

Marginal Cost Curves

Graphs that show how the cost of producing one additional unit changes as the production volume increases.

Variable Costs

Costs that change in proportion to the level of output or activity, such as raw materials, labor, and utilities.

Output

The quantity of goods or services produced by a business, industry, or country.