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- Subject
- Money, Interest Rates And Outputeconomics-mcqs › money-interest-rates-and-output
- Published
- 31 May 2019
- Last updated
- 28 May 2026
If the government raises its expenditures and the central bank wants to maintain the current interest rate, what action must the central bank take?
Multiple choice question for Money, Interest Rates And Output. Select an option, then review the explanation below.
Explanation
When the government increases spending, it tends to push interest rates upward due to higher demand for funds. To keep interest rates stable, the central bank must offset this by increasing the money supply, ensuring sufficient liquidity in the economy.
More Money, Interest Rates And Output MCQs
Practice related questions from the same subject.
- 1.How does a decrease in interest rates affect the monetary base, consumer credit availability, and the cost of consumer credit?
- 2.Which variable do central banks typically set directly, and which variable adjusts as a consequence?
- 3.What is it called when the central bank purchases financial assets in the open market to expand the monetary base?
- 4.M4 is considered a __________ monetary aggregate and encompasses deposits held at both __________ and __________?
- 5.Assuming all other factors remain constant, what happens to the quantity of real money holdings when interest rates increase?