If the Fed Has a Goal of Stable Real GDP

question 51

Multiple Choice

If the Fed has a goal of stable real GDP and government spending increased,which of the following would occur?

• A) The money demand would not change,real GDP would not change,the interest rate would decrease,and there would be partial crowding out.
• B) Money demand would not change,real GDP would not change,the interest rate would increase,and there would be complete crowding out.
• C) Money demand would increase,real GDP would not change,the interest rate would increase,and there would be partial crowding out.
• D) Money demand would not change,real GDP would increase,the interest rate would decrease,and there would be complete crowding out.
• E) Money demand would increase,real GDP would not change,the interest rate would decrease,and there would be complete crowding out.

---

Definitions:

Interest Rate

The amount charged by lenders to borrowers for the use of assets, usually expressed as a percentage of the principal, influencing borrowing and saving behaviors.

Usury Law

Legislation that sets a maximum interest rate that may be charged on loans to prevent predatory lending practices.

Shortage

A situation where the demand for a product or service exceeds the available supply, often leading to higher prices.

Loanable Funds

The money available for borrowing, which comes from savings in the economy and influences interest rates through supply and demand dynamics.