Which of the following would be most indicative of a shift to a more restrictive monetary policy?
A) Rapid expansion in the monetary base, higher  short-term interest rates, and  a decline in the growth rate of the M1 money supply.
B) Rapid expansion in the monetary base, declining  short-term  interest rates, and  an increase in the growth rate of the M2 money supply.
C) A reduction in the monetary base, higher  short-term  interest rates, and a decline in the growth rate of the M2 money supply.
D) A reduction in the monetary base, lower short-term interest rates, and a decline in the growth rate of the M1 money supply.

Question

Which of the following would be most indicative of a shift to a more restrictive monetary policy?
A) Rapid expansion in the monetary base, higher  short-term interest rates, and  a decline in the growth rate of the M1 money supply.
B) Rapid expansion in the monetary base, declining  short-term  interest rates, and  an increase in the growth rate of the M2 money supply.
C) A reduction in the monetary base, higher  short-term  interest rates, and a decline in the growth rate of the M2 money supply.
D) A reduction in the monetary base, lower short-term interest rates, and a decline in the growth rate of the M1 money supply.

Quizplus · Accepted Answer

A shift to a more restrictive monetary policy involves reducing the availability of money in the economy. Therefore a reduction in the monetary base would be indicative of such a shift. Higher short-term interest rates make it more expensive for consumers and businesses to borrow money, further reducing the availability of money in the economy. A decline in the growth rate of the M2 money supply, which includes M1 and other types of money such as savings deposits, would also indicate a reduction in the availability of money as consumers are being less active in holding savings deposits.

Which of the Following Would Be Most Indicative of a Shift