Use the Following to Answer Questions

question 1

Multiple Choice

Use the following to answer questions .
Exhibit: Effects of Monetary Policy
-(Exhibit: Effects of Monetary Policy) If the Fed acts to close the output gap in Panel (a) , it would

• A) sell government bonds which will lead to the shift in demand for bonds in Panel (b). This action will raise the price of bonds and lower the interest rate.
• B) buy government bonds which will lead to the shift in demand for bonds in Panel (b). This action will raise the price of bonds and increase the interest rate.
• C) buy government bonds which will lead to the shift in demand for bonds in Panel (b). This action will raise the price of bonds and lower the interest rate.
• D) sell government bonds which will lead to the shift in demand for bonds in Panel (b). This action will raise the price of bonds and increase the interest rate.

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Definitions:

Loyal

The quality of being faithful or devoted to a person, country, group, or cause.

Stockholders

Individuals or entities that own shares of stock in a corporation, making them partial owners of the company.

Marginal Efficiency

The rate of return on an investment that is additional or marginal to the current level of investment.

Capital

Assets or resources, such as machinery, buildings, or money, that can be used to produce goods and services and generate wealth.