When the Fed Unexpectedly Increases the Money Supply, It Will

question 40

Multiple Choice

When the Fed unexpectedly increases the money supply, it will cause an increase in aggregate demand because

• A) real interest rates will fall, stimulating business investment and consumer purchases.
• B) the dollar will appreciate on the foreign exchange market, leading to a decrease in net exports.
• C) lower interest rates will tend to decrease asset prices (for example, stock prices), which decreases wealth and, thereby, decreases current consumption.
• D) the general level of prices will fall, which will increase the disposable income of households.

Recognize the effects of inflation and deflation on purchasing power and savings.

Distinguish between various price indices like Core CPI, PPI, and their relevance to consumer costs and inflation.

Learn about the historical occurrence of inflation and deflation in the U.S. economy.

Understand the limitations and advantages of using CPI and other indices for measuring inflation.

---

Definitions:

National Labor Relations Act

A foundational statute of US labor law that guarantees workers the right to form unions, engage in collective bargaining, and take collective action such as strikes.

Sherman Act

A foundational antitrust law in the United States, enacted in 1890, aimed at preventing monopolistic practices and promoting competition.

Clayton Act

A U.S. antitrust law enacted in 1914 aimed at promoting competition and preventing monopolies by prohibiting certain practices that could lead to anti-competitive behavior.

Federal Labor Law

Laws established by the federal government to regulate the relationship between employees, employers, and unions.