During the Stagflation Triggered by the OPEC Price Hikes in the 1970's

question 111

Multiple Choice

During the stagflation triggered by the OPEC price hikes in the 1970's, central banks increased the money supply because

• A) they thought the recession was caused by a negative demand shock.
• B) this is the best policy for a negative supply shock.
• C) low interest rates are appropriate policy for an inflationary gap.
• D) the government's inflation-rate target range was 10 to 15 percent.
• E) they thought a lower exchange rate was preferable to low interest rates.

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Definitions:

Opportunity Cost

The loss of potential gain from other alternatives when one alternative is chosen.

Rival Nation

A country that competes with another, often in economic, military, or technological aspects.

Mercantilism

An economic theory and practice that promotes government regulation of the nation's economy to increase state power at the expense of rival national powers.

Trade Surplus

A situation where a country's exports exceed its imports over a given period.