The main objective of contractionary monetary policy is to

 

		A. decrease aggregate demand
		B. close a recessionary gap
		C. increase investment
		D. raise the level of potential output

 

2.What would we expect to happen to the interest rate when both the price level and the money supply fall?

		A. The interest rate will rise
		B. The interest rate will fall
		C. The interest rate could either rise or fall
		D. Nothing will happen to the interest rate

 

3.If the central bank's inflation target is 2%, and the current rate of inflation is 4%, appropriate monetary policy would be to

		A. buy bonds on the open market or reduce the target for the overnight rate
		B. sell bonds on the open market or reduce the target for the overnight rate
		C. buy bonds on the open market or increase the target for the overnight rate
		D. sell bonds on the open market or increase the target for the overnight rate

 

4.If the current unemployment rate is greater than the natural rate of unemployment, an appropriate monetary policy would be to sell bonds on the open market

		True
		False

 

5.Bond sellers must offer bond buyers a higher interest rate when the quantity of money demanded is greater than the quantity of money supplied.

		True
		False

 

6.The transactions demand for money is most closely related to money functioning as a

		A. unit of account
		B. store of value
		C. medium of exchange
		D. measure of value

 

Answer rating: 100% (QA)

Q1 A decrease aggregate demand B close a recessionary gap D raise the level of potential output C in... View the full answer