Author Question: Suppose the central bank implements a monetary contraction that is fully expected by financial ... (Read 112 times)

Mr3Hunna · **on:** Jun 30, 2018

Suppose the central bank implements a monetary contraction that is fully expected by financial market participants. Given this information, we would expect

A) stock prices to rise.
B) stock prices to fall.
C) stock prices to remain unchanged.
D) an ambiguous effect on stock prices.
E) stock prices to fall and the interest rate to rise.

Question 2

An open market sale of bonds by the central bank will cause which of the following when a liquidity trap situation exists?

A) The interest rate will increase.
B) The interest rate will not change.
C) Output will decrease.
D) The money supply, M, will not change.
E) none of the above