If the Economy Is at Potential Output and the Fed

question 16

Multiple Choice

If the economy is at potential output and the Fed increases the money supply, in the SHORT run the likely result will be a(n) _____ in investment and a(n) _____ in consumption.

• A)increase; increase
• B)increase; decrease
• C)decrease; increase
• D)decrease; decrease

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Definitions:

Principal Amount

The initial size of a loan or bond or the amount of money invested, excluding any interest or dividends.

Coupon Rate

The interest rate stated on a bond or fixed-income security, representing the annual payout as a percentage of the bond's face value.

Interest Payments

The payments made by borrowers to lenders as a fee for using the borrowed money, typically expressed as an annual rate.

Tax Deductible

Refers to eligible expenses that can be subtracted from taxable income, thereby reducing the total amount of tax owed to the government.