If the Fed Wishes to Maintain Its Interest Rate Target

question 68

Multiple Choice

If the Fed wishes to maintain its interest rate target in the face of decreased money demand it would likely

• A) increase the money supply.
• B) decrease the money supply.
• C) more stringently enforce already existing banking regulations.
• D) propose new banking regulations.
• E) become more lax when it enforces already existing banking regulations.

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Definitions:

Transfer Payments

Payments made by the government to individuals through various social benefit programs, without the government receiving any goods or services in return.

Government Purchases

Expenditures by the government for goods and services that directly satisfy public consumption or are invested in public infrastructure.

Taxes

Taxes are compulsory financial charges or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund government spending and various public expenditures.

Fiscal Policy

Government adjustments in spending levels and tax rates to monitor and influence a nation's economy.