Assume the Fed Initiates an Expansionary Monetary Policy That Is

question 173

Multiple Choice

Assume the Fed initiates an expansionary monetary policy that is correctly anticipated by economic agents in the economy. According to the rational expectation hypothesis, the result is

• A) an increased price level in the short run, but no effect on price level in the long run.
• B) decreased real Gross Domestic Product (GDP) in the short run, but increased real Gross Domestic Product (GDP) in the long run.
• C) increased real Gross Domestic Product (GDP) and increased employment in the long run.
• D) an increased price level, but no change in real Gross Domestic Product (GDP) in the long run.

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Definitions:

Fair Value

The valuation expected from selling an asset or the outlay needed to reassign a liability in a coordinated market transaction as determined on the measurement date.

Future Cash Flows

Estimates of the amount of money that is expected to be generated or expended by a business in future periods from its operational activities.

Goodwill

A non-physical asset that is recognized when a company is purchased at a price higher than the cumulative fair value of its recognizable net assets.

Interim Dividend

A dividend payment made before a company's annual earnings are calculated and finalized.