Which of the Following Is an Appropriate Policy for a Central

question 85

Multiple Choice

Which of the following is an appropriate policy for a central bank to follow if the economy is plagued with deflation?

• A)increasing the target interest rate on overnight loans
• B)using contractionary monetary policy to drive up interest rates
• C)consistently pursuing policy to promote the credibility of the central bank
• D)gradually raising the required reserve rate
• E)sharply increasing the target for the overnight rate

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Definitions:

Marginal Cost

The added expense incurred upon producing one further unit of a good or service.

Average Cost

The total cost of production divided by the quantity of output produced, indicating the cost per unit of output.

Short-run Cost Function

A relationship between production cost and output level when one or more inputs are fixed, typically analyzing costs within a time frame that doesn't allow for all factors of production to be adjusted.

Long-run Cost Function

A representation of the total cost associated with the production of goods over time, taking into account all variable and fixed inputs.