Assume a Central Bank Follows a Rule That Requires It

question 25

Multiple Choice

Assume a central bank follows a rule that requires it to take steps to keep the price level constant.If the price level fell because of a decrease in aggregate demand and an increase in aggregate supply that kept output unchanged,then

• A)the central bank would have to raise interest rates which would decrease output.
• B)the central bank would have to raise interest rates which would increase output.
• C)the central bank would have to reduce interest rates which would decrease output.
• D)the central bank would have to reduce interest rates which would increase output.

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Definitions:

Working Capital

The difference between a company's current assets and its current liabilities, representing the short-term financial health and operational efficiency of the business.

Salvage Value

The estimated resale value of an asset at the end of its useful life.

Initial Outlay

The upfront expenditure required to start a project, such as purchasing equipment or inventory, crucial for budgeting and financial planning.

Incremental Cash Flows

The additional cash flow a new project generates for an organization, which is critical for assessing its viability and profitability.