All Else Equal, When the Fed Purchases Government Bonds, the Money

question 145

Multiple Choice

All else equal, when the Fed purchases government bonds, the money supply curve shifts to the _______ and the equilibrium interest rate _______.

• A) right; falls
• B) left; rises
• C) right; rises
• D) left; falls

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Definitions:

Normal Good

A type of good for which demand increases when income increases and falls when income decreases, with other factors being constant.

Inferior Good

A type of good for which demand decreases as the income of the consumer increases, opposite to normal goods.

Luxury

A good or service that is considered non-essential but desirable, often characterized by high quality, exclusivity, and a high price.

Necessity

A good or service that is essential for survival or basic living, such as food, water, or shelter.