Which of the Following Measures Would Decrease the Money Supply

question 129

Multiple Choice

Which of the following measures would decrease the money supply?

• A) increasing the reserve requirement
• B) decreasing the discount rate
• C) buying government bonds
• D) decreasing the federal funds rate

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Definitions:

Deflationary Gap

A situation where aggregate demand is less than the total supply of goods and services, leading to deflation and unemployment.

Equilibrium GDP

The level of Gross Domestic Product at which aggregate supply equals aggregate demand, indicating a stable economy.

Full Employment GDP

Full Employment GDP is the output level produced by an economy when all its labor and resources are employed at their maximum efficiency.

Multiplier

refers to a factor by which an initial change in spending will ultimately change the total economic output more than the initial amount.