If the Fed Reduces the Discount Rate, Which of the Following

question 115

Multiple Choice

If the Fed reduces the discount rate, which of the following are most likely to result?

• A) The money supply curve shifts rightward, and the equilibrium interest rate falls in the money market.
• B) Investment declines, causing the aggregate demand curve to shift leftward, reducing equilibrium real GDP and thus slowing the economy.
• C) Investment rises, causing the aggregate demand curve to shift rightward, increasing equilibrium real GDP and thus accelerating the economy.
• D) Both a. and b. above are correct.
• E) Both a. and c. above are correct.

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Definitions:

Inspirational Appeal

A persuasive tactic that aims to motivate or inspire others by appealing to their emotions and values.

Referent Power

A form of influence based on the leader's appeal and charisma that inspires loyalty and admiration from followers.

Compliance

The act of following and adhering to rules, regulations, or requests established by authorities or organizations.

Coercive

Employing force or intimidation to obtain compliance or control over others.