When the Fed Increases the Quantity of Money

question 89

Multiple Choice

When the Fed increases the quantity of money,

• A) the price level immediately increases.
• B) the price level is slow to change.
• C) the nominal interest rate immediately increases but the real interest rate does not change.
• D) real GDP immediately decreases.
• E) both the nominal interest rate and real interest rate immediately increase.

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Definitions:

Incentives

Rewards or motivations provided to encourage specific behaviors or actions.

Learning

The method of obtaining new comprehension, knowledge, conduct, capabilities, beliefs, or inclinations.

Homeostasis

The process by which living organisms maintain a stable internal environment to function effectively, despite external changes.

Drive-reduction Theory

A theory of motivation that proposes an individual's behavior is an external display of the desire to satisfy physiological needs.