If the Price Level Depends on Both the Current Money

question 67

Multiple Choice

If the price level depends on both the current money supply and future expected money supplies, in order to stop a hyperinflation, a central bank may try to establish credibility by:

• A) achieving increased political independence from the government.
• B) increasing revenue from seigniorage.
• C) encouraging increased government spending and tax cuts.
• D) undertaking larger open-market purchases.

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Definitions:

Marginal Costs

The financial outlay required to produce an additional unit of a product or service.

Cash Flows

The total amount of money being transferred into and out of a business, especially affecting liquidity.

Interest Rate

The percentage of a sum of money charged for its use, often expressed annually, affecting loans and savings.

Present Value

The current worth of a future sum of money or stream of cash flows given a specified rate of return.