When the Fed Purchases Additional Securities and Shifts to a More

question 53

Multiple Choice

When the Fed purchases additional securities and shifts to a more expansionary monetary policy,

• A) the inflation rate will rise almost immediately.
• B) the growth of output and employment will increase quickly.
• C) several months will typically pass before the shift in policy exerts much impact on output and employment.
• D) this policy will eventually lead to a decline in the general level  of prices if it is continued for a prolonged period of time.

---

Definitions:

Real Interest Rate

The rate of interest an investor expects to receive after allowing for inflation, showing the real cost of funds to the borrower and the real yield to the lender.

Domestic Investment

The total capital expenditure within a country's borders, primarily by residents and businesses, on assets like buildings and equipment.

Domestic Interest Rate

The rate at which interest is paid by a borrower for the use of money that they borrow from a lender within the domestic market.

Loanable Funds

The money available for borrowing in the financial markets, coming from savings that consumers and businesses want to lend out.