Which of the Following Actions Should the Central Bank Take

question 53

Multiple Choice

Which of the following actions should the central bank take if monetary authorities want to reduce the supply of money to slow the rate of inflation?

• A) Sell government bonds, reducing money supply, increasing interest rates and slowing aggregate demand.
• B) Buy government bonds, reducing money supply, increasing interest rates and slowing aggregate demand.
• C) Decrease the discount rate, lowering interest rates, causing both costs and prices to fall.
• D) Increase taxes, reducing costs, causing prices to fall.

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Definitions:

Pro Forma Cash Flows

Projected cash inflows and outflows that are expected to occur as a result of a proposed financial decision or investment.

Hostile Takeover

An acquisition attempt by a company or individual without the consent or cooperation of the target company's board of directors.

Investment Banking Firm

An establishment engaged in finance that helps people, businesses, and government bodies acquire funds by underwriting or serving as the representative of the client in the release of securities.

Defensive Strategy

A business approach aimed at protecting the existing market share, products, and profitability against competitors' actions.