If the Central Bank Follows a Rules-Based Approach to Monetary

question 32

Multiple Choice

If the central bank follows a rules-based approach to monetary policy and the velocity of money turns out to be larger than expected, then inflation:

• A) will be lower than expected.
• B) will be higher than expected.
• C) will be unaffected.
• D) could be higher or lower than expected.

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Definitions:

Nonparticipating

A term often used in insurance to describe a policy that does not grant the holder the rights to share in the insurer's surplus or dividends.

Paid-In Capital

the amount of money that a company receives from issuing stock to investors, reflecting the capital invested by shareholders.

Fair Market Value

The price at which property would sell on the open market between a willing buyer and a willing seller.

Noncumulative Nonparticipating

Refers to a type of preferred stock that does not allow for the accumulation of unpaid dividends if they are not declared by the board, nor does it participate in the extra profits of the company.