When the Federal Reserve Increases the Growth Rate of the Money

question 33

Multiple Choice

When the Federal Reserve increases the growth rate of the money supply to combat a negative real shock,the growth rate of real GDP:

• A) will increase more than the inflation rate.
• B) will increase less than the inflation rate.
• C) and the inflation rate will both increase by the same amount.
• D) and the inflation rate will both decrease by the same amount.

---

Definitions:

Accounting Income

Accounting income is the net profit of a company, calculated according to generally accepted accounting principles (GAAP), and includes all revenues and expenses.

Incremental Cash Flows

These are the additional cash flows from operations that a business generates from taking on a new project.

Capital Budgeting

Capital budgeting is the process by which a business evaluates and selects significant long-term investments, based on potential returns and strategic objectives.

Net Acquisition

When there is a purchase and sale of assets (within the same asset class) in the same year, CCA is calculated on the capital cost of the new asset minus the lesser of the original capital cost or the net proceeds from the asset disposed.