If the Fed Decreases the Money Supply,causing the Interest Rate

question 129

Multiple Choice

If the Fed decreases the money supply,causing the interest rate to rise,GDP

• A)increases by the same amount as the increase in the interest rate
• B)decreases by more than the increase in the interest rate because of the multiplier
• C)decreases by the same amount as the decrease in investment
• D)decreases by more than the decrease in investment because of the multiplier
• E)decreases by less than the decrease in investment because of the multiplier

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Definitions:

Risk-Free Rate

The theoretical rate of return of an investment with no risk of financial loss, often represented by the yield on government bonds.

Systematic Risk

The risk inherent to the entire market or market segment, unmitigable through diversification, often related to economic, political, or societal factors.

Market Risk

The potential for an investor to experience losses due to factors that affect the overall performance of the financial markets.

Large Number of Assets

Refers to having a substantial amount of different assets, typically to diversify and reduce risk.