The Most Likely Impact of an Unanticipated Increase in the Money

question 106

Multiple Choice

The most likely impact of an unanticipated increase in the money supply is a(n) :

• A)​increase in the real interest rate, which in turn stimulates investment and GDP.
• B)​decrease in the real interest rate, which in turn stimulates investment and GDP.
• C)​decrease in real output, which causes the real interest rate to decline and in turn stimulate investment and GDP.
• D)​increase in real output, which causes the real interest rate to decline.

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Definitions:

Semi-Annual Coupon

A bond payment made to bondholders twice a year, representing interest on the bond's face value.

Effective Annual Yield

The actual interest rate an investment earns in a year, taking into account the effects of compounding.

Maturity

The final payment date of a loan or other financial instrument, at which point the principal (and all remaining interest) is due to be paid.

Annual Coupon

The interest payment made to bondholders once a year, based on the bond's face value.