When the Fed Reacts to a Positive Aggregate Demand Shock

question 70

Multiple Choice

When the Fed reacts to a positive aggregate demand shock, which of the following is likely to make the period of disinflation shorter? I. credibility on the part of the Fed II. higher uncertainty about investment returns III. greater nominal wage flexibility

• A) I and II only
• B) II and III only
• C) I and III only
• D) I, II, and III

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Definitions:

Money Markets

Financial markets for short-term borrowing and lending, dealing with assets that have high liquidity and short maturities.

Capital Market Instruments

Financial securities used in the capital markets to raise funds or investment, including stocks, bonds, debentures, and other vehicles.

Commercial Loan

A debt-based financial agreement between a business and a financial institution, used for funding major capital expenditures or operational costs.

Money Market Mutual Funds

Money Market Mutual Funds are investment funds that invest in short-term debt securities and aim to provide returns with minimal risk.