If the Central Bank Uses Monetary Policy to Attempt to Hold

question 62

Multiple Choice

If the central bank uses monetary policy to attempt to hold Y permanently above Y^*,

• A)inflation will accelerate over time.
• B)it will fail.
• C)the AD curve will shift leftward to cure the inflation problem.
• D)inflation is not a problem, but unemployment is.
• E)inflation can be kept at a low, constant rate.

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Definitions:

Economy

An organized system of production, distribution, and consumption of goods and services within a specific geographical area, involving various agents and market forces.

Circular-Flow Diagram

A model that illustrates the flow of goods and services and money between households and businesses in an economy.

Households

Economic units comprising all persons who occupy a housing unit, responsible for making consumption and investment decisions.

Demanders

Individuals or entities that express a willingness and ability to purchase goods or services at a given price.