If the Economy Is at Potential GDP and the Fed

question 101

Multiple Choice

If the economy is at potential GDP and the Fed makes an open market purchase of government securities, in the short run bank reserves__________ , the nominal interest rate__________ , and the aggregate demand curve __________.

• A) increase; falls; shifts rightward
• B) increase; rises; shifts rightward
• C) stay constant; does not change; does not shift
• D) decrease; falls; shifts rightward

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Definitions:

Market Rate

The prevailing price or interest rate for goods, services, or securities in a competitive market.

Principal-Agent Problem

A dilemma in which an agent (employee or representative) may not act in the best interest of the principal (employer or client) due to differing objectives and information asymmetry.

High-Level Executives

Senior managers and corporate officers who have significant responsibilities in directing and overseeing the operations and strategic direction of a company.

Marginal Returns

The additional output gained by adding one more unit of a particular input while keeping other inputs constant.