When the Economy Is Hit by a Negative Demand Shock

question 30

Multiple Choice

When the economy is hit by a negative demand shock and the central bank does not respond by changing the autonomous component of monetary policy,then

• A)inflation will be lower.
• B)output will be at its potential.
• C)output will be lower.
• D)inflation will not change.
• E)both A and B.

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Definitions:

Accrued Interest

The interest that has accumulated on a bond or other fixed-income security since the last interest payment was made.

Settlement

The process of exchanging payment for financial transactions, including securities, at their completion.

Semiannual Coupon

Bonds that pay interest to the holder twice a year.

Accrued Interest

Interest that has been incurred but not yet paid, typically relevant in bond investments.