If the Fed overshoots when responding to a negative demand shock:
A. it will cause deflation, which the Fed will fight by reducing the growth rate of the money supply.
B. it will cause inflation, which the Fed will fight by increasing the growth rate of the money supply.
C. it will cause inflation, which the Fed will fight by reducing the growth rate of the money supply.
D. it will cause deflation, which the Fed will fight by increasing the growth rate of the money supply.
Ans: C. it will cause inflation, which the Fed will fight by reducing the growth rate of the money supply.
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Which is a plausible cause of the movement in Figure 13.1 from point 1 to point 2?
A) a change in expectations that causes a decline in the real interest rate for investments B) a decrease in expected inflation C) the economy's self-correcting mechanism D) the central bank achieves a negative value for the nominal interest rate E) none of the above
An advantage of the decision tree is that
A) it eliminates the need for calculating the cost of capital. B) it eliminates the need for calculating probabilities. C) it causes the analyst to consider important events that may occur in the course of the project, and decisions and actions that may have to be undertaken. D) All of the above