Suppose There Was a Large Increase in Net Exports

question 12

Multiple Choice

Suppose there was a large increase in net exports. If the Fed wanted to stabilize output, it could

• A)increase the money supply, which will reduce interest rates.
• B)decrease the money supply, which will reduce interest rates.
• C)increase the money supply, which will increase interest rates.
• D)decrease the money supply, which will increase interest rates.

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Definitions:

Equilibrium Quantity

The amount of products or services available and sought after at the equilibrium price, a point where the supply and demand in the market equalize.

Price Ceilings

Government-imposed limits on how high a price can be charged for a product or service.

Market Equilibrium

The condition in which market supply equals market demand, such that prices become stable.

Increased Demand

Describes a situation where a larger number of consumers are willing and able to purchase a good or service at a given price, often leading to higher prices or a market shortage if supply does not increase correspondingly.