Suppose There Is a Decrease in Aggregate Demand

question 33

Multiple Choice

Suppose there is a decrease in aggregate demand.If the Fed wants to stabilize output it could

• A)buy bonds.These purchases also move the price level closer to its original level.
• B)buy bonds.However these purchases move the price level farther from its original level.
• C)sell bonds.These sales also move the price level closer to its original level.
• D)sell bonds.However these sales move the price level farther from its original level.

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Definitions:

Ultimatum Game

A game in experimental economics where two players decide on how to divide a sum of money; one proposes a split, and the other player can accept or reject.

Invisible Hand

A term coined by Adam Smith to describe the self-regulating nature of the marketplace, where individuals pursuing their own interests unintentionally benefit society.

Precommitments

Strategies or commitments made in advance to limit or define future actions or decisions.

Time Inconsistency

Time inconsistency refers to the situation where a decision-maker's preferences change over time, especially in ways that involve a conflict between short-term and long-term interests.