Suppose Households Attempt to Increase Their Money Holdings

question 31

Multiple Choice

Suppose households attempt to increase their money holdings.To stabilize output by countering this increase in money demand,the Federal Reserve would

• A)increase government spending.
• B)increase the money supply.
• C)decrease government spending.
• D)decrease the money supply.

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Definitions:

Demand Curve

A graph showing the relationship between the price of a product and the quantity of the product that consumers are willing and able to purchase at that price.

Substitute Good

A product or service that a consumer can use in place of another to satisfy the same need or desire.

LRMC

Long-Run Marginal Cost, which refers to the change in total production costs that comes from producing one additional unit of a good or service when all inputs are variable.

SRMC

Short-Run Marginal Cost (SRMC) is the cost to produce one additional unit of output when some inputs are fixed.