Suppose that a series of banking emergencies suddenly increased the demand for currency and reduced the demand for checking deposits. You would expect, in that case, to see
A) interest rates climb and nominal GDP fall unless the Fed increased the monetary base.
B) interest rates fall and nominal GDP rise unless the Fed reduced the monetary base.
C) a monetary policy targeted at maintaining a constant monetary policy be less effective in maintaining a constant level of GDP than a policy that targeted a constant monetary base.
D) a and c only.
E) b and c only.

Question

Quizplus · Accepted Answer

An increase in demand for currency and a decrease in demand for checking deposits would lead to higher interest rates and a potential fall in nominal GDP unless the Federal Reserve intervenes by increasing the monetary base to offset these changes.

Suppose That a Series of Banking Emergencies Suddenly Increased the Demand