Author Question: In the interest-rate-based transmission mechanism, a decrease in the money supply will A) reduce ... (Read 122 times)

oliviahorn72 · **on:** Jun 30, 2018

In the interest-rate-based transmission mechanism, a decrease in the money supply will

A) reduce investment, shift the aggregate demand function inward, and lower real Gross Domestic Product (GDP).
B) reduce the rate of interest and the level of investment.
C) increase the price level.
D) shift the aggregate supply function inward and increase real Gross Domestic Product (GDP).

Question 2

Everything else remaining unchanged, what will happen if the Fed buys government bonds in the open market and borrowed reserves is zero?

A) It will cause the equilibrium federal funds rate to fall and the equilibrium quantity of reserves to increase.
B) It will cause both the equilibrium federal funds rate and equilibrium quantity of reserves to fall.
C) It will cause the equilibrium federal funds rate to rise, but no change in the equilibrium quantity of reserves.
D) It will cause the equilibrium federal funds rate to fall, but no change in the equilibrium quantity of reserves.