Suppose That There Is an Increase in the Demand for Money

question 31

Multiple Choice

Suppose that there is an increase in the demand for money. What is the appropriate monetary policy response in the New Keynesian sticky price model?

• A) an increase in the interest rate target
• B) no change in the interest rate target
• C) a decrease in the interest rate target
• D) an increase in government spending

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Definitions:

Taxpayer

An individual or entity that is obligated to make payments to a governmental authority, usually in the form of taxes on income, property, or purchases.

Invisible Hand

A metaphor used by Adam Smith to describe the self-regulating nature of the market, where individual self-interest promotes societal benefit.

Economic Policy

Strategies and actions taken by the government to influence its economy, affecting issues like unemployment, inflation, and economic growth.

Monetary Stability

The condition of having stable prices and low inflation in an economy, maintaining the purchasing power of the currency.