In 2005-2006, the Fed Increased Interest Rates in an Attempt

question 28

Multiple Choice

In 2005-2006, the Fed increased interest rates in an attempt to halt inflation.What was the most likely effect of raising interest rates on velocity?

• A)It will decrease.
• B)It will increase.
• C)It will remain constant.
• D)Velocity is unrelated to saving accounts.

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Definitions:

Best Possible Price

Achieving the most favorable cost condition under given circumstances, often in purchasing or selling scenarios.

Federal Reserve Districts

Geographic regions in the United States served by a specific Federal Reserve Bank.

M2

M2 is a measure of money supply that includes all elements of M1 (cash and liquid assets) plus near money, such as savings deposits, money market securities, and other time deposits, which are less liquid but can easily be converted into cash or checking deposits.

M1

M1 is a category of the money supply that includes physical currency and coin, demand deposits, traveler's checks, and other liquid funds.