If the Central Bank Expands the Money Supply Under Floating

question 66

Multiple Choice

If the central bank expands the money supply under floating exchange rates, it potentially stimulates the economy in two ways, namely:

• A) by raising the price level and by increased competition.
• B) by lowering the rate of interest and by causing a depreciation of the currency.
• C) by creating higher spending and by increasing the budget deficit.
• D) by increasing worker productivity and creating R&D incentives for firms.

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Definitions:

Real GDP

Gross Domestic Product adjusted for inflation, measuring the value of all final goods and services produced within a country's borders in a given year, reflecting the real quantity of production.

Expansionary Monetary Policy

A policy by the central bank to increase money supply and encourage economic growth, typically through lowering interest rates.

Fed

Short for Federal Reserve, the central banking system of the United States, responsible for monetary policy.

Market Interest Rate

The prevailing rate at which borrowers can obtain loans and depositors can earn on their investments in the financial market, influenced by supply and demand forces.