If the Fed Engages in Open Market Sales in Direct

question 141

Multiple Choice

If the Fed engages in open market sales in direct response to an increase in the rate of inflation, this is known as

• A) direct policymaking.
• B) active policymaking.
• C) passive policymaking.
• D) fiscal policymaking.

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Definitions:

Expansionary Gap

A condition in which the actual output of an economy surpasses the level of output at full employment, commonly resulting in inflation.

Real GDP

Gross Domestic Product adjusted for inflation, reflecting the value of all goods and services produced by an economy in a given year in real terms.

Nominal GDP

The total market value of all goods and services produced within a country’s borders in a given period without adjusting for inflation.

Short Run

In economics, the short run is a period in which at least one input, like equipment or labor, is fixed and cannot be changed, influencing decision-making and production levels.