If There Is a Decrease in World Oil Prices and the Fed

question 2

Multiple Choice

If there is a decrease in world oil prices and the Fed wishes to maintain output stability,what should it do?

• A) Buy bonds in the open market.
• B) All the economy to adjust itself.
• C) Sell bonds in the open market.
• D) Impose higher taxes to counteract the supply shock.
• E) Lower taxes to maintain output.

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Definitions:

Aggregate Demand Curve

The total demand curve illustrates the overall volume of goods and services the economy requires at various price points.

Investment Demand Curve

A graph showing the relationship between the rate of interest and the total amount of investment demanded by all sectors in the economy.

Market Interest Rate

The prevailing rate at which borrowers can secure loans and lenders receive returns, determined by supply and demand in the money market.

Autonomous Spending

Spending that does not depend on the current level of national income or output, such as investments, government spending, and exports.