Suppose that after five solid years of economic growth, Eurekaland begins to experience inflationary pressures due to strong consumer and investor confidence. If Eurekaland's Central Bank wants to prevent inflation from becoming a major problem, which of the following actions should it take?
A) It should reduce the money supply to push interest rates higher.
B) It should increase the money supply to push interest rates higher.
C) It should reduce the money supply to push interest rates lower.
D) It should increase the money supply to push interest rates lower.
Ans: C) It should reduce the money supply to push interest rates lower.
You might also like to view...
People hold money as opposed to financial assets because money
A) earns interest. B) earns no interest. C) is perfectly liquid. D) earns a higher return than other financial assets.
Fiscal policy:
a. Is a powerful tool because budget deficits add directly to Aggregate Demand with no offsetting changes in consumption, investment, and/or net exports. b. May not be a powerful tool if most government expenditures are fixed and unchangeable in the short run. c. Is not a powerful tool because the government has very little control over a nation's monetary base and/or money multiplier. d. Is a powerful tool because of the decisive movements in the automatic stabilizers.