To Offset the Effect of Households and Firms Deciding to Hold

question 38

Multiple Choice

To offset the effect of households and firms deciding to hold less of their money in checking account deposits and more in currency,the Federal Reserve could

• A)raise the required reserve ratio.
• B)buy Treasury securities.
• C)raise the discount rate.
• D)lower bank taxes.

Understand the role and actions of the Federal Reserve in countering economic fluctuations.

Calculate the impact of changes in government spending and taxation on aggregate demand using the concept of the multiplier.

Analyze the effect of temporary versus permanent tax cuts on aggregate demand.

Identify the factors influencing the shift in the aggregate demand curve due to changes in fiscal and monetary policy.

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Definitions:

After-Tax Savings

The amount of money saved after all applicable taxes have been deducted, reflecting true savings available to an individual or entity.

After-Tax Accounting Rate of Return

A measure of an investment's profitability, taking into account the effects of taxes on the return.

Depreciation

Depreciation is the accounting process of allocating the cost of a tangible asset over its useful life, reflecting wear and tear, deterioration, or obsolescence.

Operating Costs

Operating Costs are expenses associated with the day-to-day functions of an organization, excluding direct material and labor costs.