According to the Austrian View of the Business Cycle, Expansionary

question 72

Multiple Choice

According to the Austrian view of the business cycle, expansionary monetary policy that pushes the interest rate to an artificially low level will

• A)lead to an increase in long-term investments like houses and office buildings without generating the savings that will be required for their purchase in the future.
• B)lead to a reduction in long-term investments like houses and office buildings that will quickly throw the economy into a recession.
• C)lead to an increase in long-term investments like houses and office buildings that will enhance the long-term growth of the economy.
• D)lead to a reduction in investment, but there will be no impact on output, employment or the general level of prices.

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Definitions:

Income Effect

The change in an individual's or economy's purchasing power generated by a change in income, affecting the quantity demanded of a good or service.

Substitution Effect

The change in consumption patterns due to a shift in relative prices, leading consumers to substitute one product for another more affordable one.

Price Change

An adjustment in the cost of a good or service, which can be an increase or decrease from its previous amount.

Perfect Complements

Goods that are always consumed together in fixed proportions, where the utility derived from one good enhances the utility derived from the other.