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Suppose the Federal Reserve Is Concerned About an Inflationary Gap

question 193

Essay

Suppose the Federal Reserve is concerned about an inflationary gap, and as a result the Fed reduces the money supply. All else equal, how will this affect the value of the dollar in global currency markets? Explain.


Definitions:

Reinforcement

In behavioral psychology, a process by which a behavior is strengthened or increased by its consequences.

Positive Reinforcement

A method of behavior modification that involves rewarding a desired behavior in order to increase the likelihood of it occurring again.

Watson

Psychologist John B. Watson, known as the father of behaviorism, emphasized the study of observable behavior.

Thorndike

An American psychologist known for his work on learning theory that led to the development of operant conditioning within behaviorism.

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