The Graph Shown Displays the Relationship Between Money and the Interest

question 64

Multiple Choice

The graph shown displays the relationship between money and the interest rate. If the money supply in the economy is currently at M^S2, and the Fed uses open market operations to move the money supply to M^S3, what is the overall effect on the economy?

• A) Aggregate demand decreases, causing GDP to fall.
• B) Aggregate supply decreases, causing GDP to fall.
• C) Aggregate demand increases, causing GDP to rise.
• D) The LRAS curve moves to the full employment level of output.

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Definitions:

Temporary Accounts

Accounts used to track transactions within a fiscal period, which are reset by transferring the balance to permanent accounts at the end of the period. These include revenues, expenses, and dividends accounts.

Accounting Period

The specific time period during which financial activities are recorded and compiled into financial statements.

Closing Entries

Journal entries made at the end of an accounting period to transfer balances from temporary accounts to permanent ones, facilitating the start of a new accounting period.

Accounting Period

A specific period of time for which financial statements are prepared, often a year or a quarter.