If the Fed Makes an Open Market Purchase of $1

question 146

Multiple Choice

If the Fed makes an open market purchase of $1 million of government securities,the monetary base

• A)is decreased by $1 million.
• B)is unchanged in size,though its composition changes.
• C)is increased by $1 million.
• D)will decrease by a multiple of $1 million over time.
• E)will increase by a multiple of $1 million over time.

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Definitions:

Free Trade

An economic policy that allows imports and exports between countries with minimal or no tariffs, quotas, or prohibitions.

Comparative Advantage

The ability of an individual or country to produce a particular good or service at a lower marginal cost than others.

Production Possibilities

Various combinations of goods and services that can be produced within an economy given available resources and technology.

Economies Of Scale

The cost advantage achieved by producing goods in large quantities, hence reducing the cost per unit.