Econlowdown Monetary Policy Exam Questions with 100% Correct Answers

In an economy experiencing a recession, with many unemployed resources, an increase in the money supply (M) would most likely lead to which scenario in the short run? - ANS - An increase in the quantity of goods and services produced (Q) and then an increase in the price level (P) If the money supply (M) increases while velocity (V) and quantity (Q) remain constant, what will likely happen as a result? - ANS - The price level (P) will increase, which means there is inflation. In the long run, increasing the money supply will most likely lead to which scenario? - ANS - Higher inflation Which of the following is one of the Federal Reserve System's two policy goals (also called its dual mandate)? - ANS - Price stability Central bank independence is most strongly linked with which economic outcome? - ANS - Price stability