Assume the central bank decides to pursue contractionary monetary policy. Where and how should you begin your analysis when analyzing the chain reaction of economic interactions?
a. Start the analysis in the real goods market with aggregate demand shifting to the left.
b. Start the analysis in the real goods market with aggregate demand shifting to the right.
c. Start the analysis in the real credit market with demand for real credit shifting to the left.
d. Start the analysis in the real credit market with demand for real credit shifting to the right.
e. Start the analysis in the real credit market with supply of real credit shifting to the left.
Question 2
To calculate the monetary base, one must:
a. Add currency held both inside financial institutions and outside financial institutions to deposits at the central bank.
b. Subtract currency in circulation from financial institutions' reserves.
c. Sum all financial institutions' reserves, because financial institutions' reserves and the monetary base are two terms meaning the same thing.
d. Subtract from financial institutions' reserves all deposits held with the central bank.
e. None of the above.
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