Targeting Interest Rates Can Be Procyclical Because

question 49

Multiple Choice

Targeting interest rates can be procyclical because

• A)an increase in income increases interest rates,causing the Fed to buy bonds,increasing the monetary base and money supply,leading to further increases in income.
• B)an increase in interest rates increases income,causing the Fed to buy bonds,increasing the monetary base and money supply,leading to further increases in income.
• C)an increase in the monetary base increases the money supply,causing the Fed to buy bonds,increasing the monetary base and money supply,leading to further increases in income.
• D)an increase in income increases the monetary base and money supply,causing the Fed to buy bonds to increase interest rates and income.

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Definitions:

Profit-Maximizing Price

The price level at which a company can sell its product or service to maximize its profit.

Specific Firm

A distinct company or business entity recognized for its unique product, service, or brand identity.

Monopolistically Competitive

A market structure characterized by many firms selling products that are similar but not identical, allowing for significant influence over prices.

Long-Run

A time period in which all factors of production and costs are variable, allowing for the adjustment of all inputs.