If the Public Has Rational Expectations and the Fed Reduces

question 39

Multiple Choice

If the public has rational expectations and the Fed reduces both reserve requirements and the discount rate, this would result in:

• A)a higher level of real output and a lower price level in the long run.
• B)a lower price level but no change in real output in the long run.
• C)a higher price level and a reduced level of real output in the short run.
• D)a higher price level but no change in real output in the short run.
• E)a higher level of real output and a lower price level in the short run.

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Definitions:

Credit Sales

Transactions where the customer purchases goods or services on the agreement to pay at a later date, often generating accounts receivable.

Cash Collection

Cash collection refers to the process of gathering all monetary settlements for goods sold or services rendered to customers.

Groundworks Company

A firm specializing in preparatory construction work such as excavation, site clearance, and foundation laying.

Cash Budget

A financial plan that estimates cash inflows and outflows over a specific period, often used to assess whether a company will have sufficient cash to meet its obligations.