Exhibit 14-7 Aggregate Supply and Demand Curves

question 140

Multiple Choice

Exhibit 14-7 Aggregate supply and demand curves

-In Exhibit 14-7,choosing to operate the economy at GDP = $1200 billion and P = 110 would be opting for an economy of:

• A) moderate unemployment with inflation.
• B) full employment without inflation.
• C) full employment with inflation.
• D) high unemployment and high inflation.
• E) moderate cyclical unemployment without inflation.

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Definitions:

Tight Monetary Policy

A central bank policy aimed at reducing inflation and slowing down the growth in the money supply by raising interest rates and other measures.

Required Reserve Ratio

The fraction of deposits that banks are required by law to keep on hand as reserves or with the central bank.

Discount Rate

The interest rate charged by central banks to commercial banks for loans.

Government Securities

Financial instruments issued by a government to raise funds from investors, promising to pay back with interest, including treasury bonds, bills, and notes considered low-risk investments.