When the Fed Changes the Quantity of Money, There Is

question 235

Multiple Choice

When the Fed changes the quantity of money, there is an immediate effect on

• A) the nominal interest rate.
• B) real GDP.
• C) the price level but not the inflation rate.
• D) the inflation rate but not the price level.
• E) the price level and the inflation rate.

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Definitions:

Self-correction

The adjustment process by which economic variables return to their long-run equilibrium without government intervention, often seen in business cycle contexts.

Nominal Wages

The amount of money paid to workers before adjustments for inflation, representing the face value of compensation received.

Real Wages

Wages adjusted for inflation, representing the purchasing power of income earned from work.

Recessionary Gap

A scenario in which the actual GDP of an economy falls short of its potential GDP, showing that resources are not being fully utilized.