The Simple Monetary Policy Rule

question 57

Multiple Choice

The simple monetary policy rule
Implies that:

• A)if ,the Federal Reserve should lower the interest rate.
• B)if ,the Federal Reserve should raise the interest rate.
• C)if ,the Federal Reserve should not change the interest rate.
• D)all of the above
• E)if ,the interest rate is zero.

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Definitions:

Purchasing-power Parity

A theory of exchange rates whereby a unit of any given currency should be able to buy the same quantity of goods in all countries.

Exchange Rates

The rate at which one currency can be exchanged for another, affecting trade and economic relations between countries.

Long Run

A period of time in economics where all factors of production and costs are variable, allowing for full adjustment to changes.

Net Capital Outflow

The difference between the purchase of foreign assets by domestic residents and the purchase of domestic assets by foreigners over a specific time period, indicating the flow of capital out of a country.