When the Fed Increases the Money Supply, the Interest Rate

question 93

True/False

When the Fed increases the money supply, the interest rate decreases. This decrease in the interest rate increases consumption and investment demand, so the aggregate-demand curve shifts to the right.

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Definitions:

Base-Case Scenario

In financial modeling and decision making, it refers to the standard set of assumptions used as a baseline for projecting the financial performance or outcome of a project.

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the percentage of fixed versus variable costs that a company has.

Marginal Tax Rate

The marginal tax rate is the rate at which an additional dollar of income is taxed, representing the fraction of the last dollar earned that is paid in taxes.

Required Rate of Return

The lowest expected gain an investor foresees from putting money into a specific asset, taking into account the asset’s level of risk.