In Which of the Following Situations Would the Fed Conduct

question 88

Multiple Choice

In which of the following situations would the Fed conduct contractionary monetary policy?

• A)The Fed believes that aggregate demand was growing too slowly to keep up with potential GDP.
• B)The Fed fears that unemployment is climbing above the natural rate.
• C)The Fed is concerned that aggregate demand would continue to exceed the growth in potential GDP.
• D)The Fed is worried that deflation will become a problem.

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Definitions:

Degree of Operating Leverage

A metric that measures a company's sensitivity of operating income to its sales, indicating the impact of fixed and variable costs.

Contribution Format Income Statement

An income statement that separates fixed and variable costs to highlight the contribution margin.

Operating Leverage

A measure of how sensitive a company's operating income is to a change in its revenues, indicating the proportion of fixed costs in the company's cost structure.

Contribution Format Income Statement

An income statement format that separates fixed costs from variable costs, thus showing the contribution margin.