If the Demand for Money Increases and the Monetary Authorities

question 11

Multiple Choice

If the demand for money increases and the monetary authorities want interest rates to remain unchanged,which of the following would be the most appropriate policy?

• A)recall currency from circulation
• B)reduce tax rates
• C)buy bonds in the open market
• D)raise the target overnight rate
• E)sell bonds in the open market

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Definitions:

Monopoly

A market structure characterized by a single seller, selling a unique product in the market. In a monopoly, the seller faces no competition, as he is the sole seller of goods with no close substitute.

Bubbles

In economics, a market condition characterized by rapid escalation of asset prices followed by a contraction.

Marginal Revenue

The extra revenue generated by the sale of an additional unit of a product or service.

Monopolist

An individual or business entity that is the sole provider of a particular good or service, enabling control over market prices.