Suppose That the Federal Reserve Is Expected to Expand the Quantity

question 345

Multiple Choice

Suppose that the Federal Reserve is expected to expand the quantity of money by 5 percent but ends up expanding it by only 2 percent. If the new Keynesian theory is correct, which of the following describes the effect on the economy?

• A) Workersʹ decisions about when to work will be affected.
• B) A recession will ensue.
• C) Inflation will be higher than expected.
• D) The economy experience a boom because the quantity of money is still growing.

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Definitions:

Acquisition

The process of learning or obtaining something, such as skills, knowledge, or possessions.

Extinction

The process in which a conditioned response gradually diminishes and eventually disappears as the conditioned stimulus is repeatedly presented without the unconditioned stimulus.

Spontaneous Recovery

The reemergence of a previously extinguished conditioned response after a pause.

Classical Conditioning

A teaching process in which two stimuli are repetitively paired; a response first initiated by the second stimulus eventually becomes initiated by the first stimulus alone.