If the Economy Is at Potential Output and the Fed

question 270

Multiple Choice

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

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

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Definitions:

Forward Contract

A financial derivative that represents a customized contract between two parties to buy or sell an asset at a specified price on a future date, which is not traded on an exchange.

Cash Flow Hedge

A financial strategy to mitigate the risk of future cash flow fluctuations, typically related to variable interest rates, foreign exchange rates, or commodity prices.

India Rupee

The India Rupee (INR) is the official currency of India, used as the medium of exchange within the country.

Fair Value Hedge

A hedging strategy used to protect against changes in the fair value of assets or liabilities.