When the Fed Conducts Expansionary Monetary Policy, Lower Short-Term Interest

question 189

Multiple Choice

When the Fed conducts expansionary monetary policy, lower short-term interest rates will tend to stimulate the economy. How will the change in the velocity of money affect this result?

• A) Velocity will decline, enhancing the stimulus effect.
• B) Velocity will increase, somewhat dampening the stimulus effect.
• C) Velocity will increase, enhancing the stimulus effect.
• D) Velocity will decline, somewhat dampening the stimulus effect.

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