If the Economy Is at Potential Output and the Fed

question 104

Multiple Choice

If the economy is at potential output and the Fed increases the money supply, in the SHORT run interest rates will likely:

• A)increase.
• B)decrease.
• C)remain constant.
• D)fluctuate randomly

---

Definitions:

Accrual Accounting

An accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when the cash is received or paid.

Proprietary Fund Types

Types of funds used by governmental entities to account for activities similar to those found in the private sector, where the intent is to recover costs through user charges.

Internal Service Funds

Funds used by a government entity to account for the services provided by one department to other departments on a cost-reimbursement basis.

Enterprise Funds

Governmental accounting funds used to account for operations financed and operated in a manner similar to private business enterprises, where the intent is that the costs are financed primarily through user charges.