When the Fed Unexpectedly Increases the Money Supply, It Will

question 40

Multiple Choice

When the Fed unexpectedly increases the money supply, it will cause an increase in aggregate demand because

• A) real interest rates will fall, stimulating business investment and consumer purchases.
• B) the dollar will appreciate on the foreign exchange market, leading to a decrease in net exports.
• C) lower interest rates will tend to decrease asset prices (for example, stock prices), which decreases wealth and, thereby, decreases current consumption.
• D) the general level of prices will fall, which will increase the disposable income of households.

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Definitions:

Embryonic Development

The process by which an embryo forms and develops, from fertilization of the ovum to the fetus stage.

Primitive Groove

A feature seen in the early embryonic stage of some animals, marking the beginning of the development of the central nervous system.

Organogenesis

Organogenesis is the process during embryonic development in which organs are formed from the three primary germ layers: the ectoderm, mesoderm, and endoderm.

Embryonic Development

The process by which an embryo forms and develops, initiating from a single cell and resulting in a fully formed organism through cellular division, differentiation, and morphogenesis.