Which of the Following Is an Appropriate Policy for a Central

question 63

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

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Definitions:

Production Possibilities

The different combinations of goods and services that an economy can produce given its available resources and technology.

Average Product

A metric that measures output per unit of a variable input, calculated by dividing total production by the quantity of the variable input.

Diminishing Marginal Returns

A principle stating that as additional units of a variable input are added to a fixed input, the additional output produced from each new unit decreases beyond a certain point.

Diminishing Marginal Returns

A principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, cannot increase forever and will eventually decrease.