Given an upward-sloping aggregate supply curve, which of the following is most likely to occur if the Fed sells securities in the open market, ceteris paribus?
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Given an upward-sloping
Lower average
Greater inflation and lower real
Lower average prices and lower real GDP.
Greater inflation and greater real GDP.
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- The economy is at full employment, with fairly low levels of unemployment and inflation. What is likely to happen to GDP, unemployment, interest rates, and inflation if: d) the government increases its deficit at the same time that the Fed is reducing the money supply. e) the government increases its surplus at the same time that the Fed is increasing the money supplyThe major problem facing the economy is high unemployment and weak economic growth. The inflation rate is low and stable. Therefore, the Federal Reserve decides to pursue a policy to increase the rate of economic growth. Which policy changes by the Fed would tend to offset each other in trying to achieve that objective? selling government securities and raising the discount rate selling government securities and raising the reserve ratio .buying government securities and raising the discount rate buying government securities and lowering the reserve ratioFrom an initial long-run equilibrium, if aggregate demand grows more slowly than long-run and short-run aggregate supply, then the president and the Congress would most likely increase the required reserve ratio and decrease government spending. decrease government spending. decrease oil prices. decrease taxes. lower interest rates.
- When the Fed lowers the federal funds rate, which of the following economic variables responds most rapidly? other short-term interest rates consumption expenditure the supply of loanable funds the inflation rate the long-term real interest rate Maintaining the growth of the money supply at a constant rate is an example of an inflation targeting rule. a money targeting rule. discretionary policy. a nominal GDP targeting rule. a money demand rule. The Fed increases the quantity of money to counteract inflation. negative net exports. a federal budget surplus. an inflationary gap. a recessionary gap. One of the major reasons why the United States exports jet airplanes is because Boeing faces ________ opportunity cost than firms in other nations in the production of such aircraft. a lower an unrelated a nonexistent an identical a higher If the United States imports purses, then the quantity of purses produced in the United States will…If the Fed indicates that inflation is likely to be a concern in the near future, the public would expect that it might Lower interest rates at its next meeting Not change interest rates at its next meeting Raise interest rates at its next meeting Lower interest rates before its next meeting Decrease the federal budget deficit at its next meetingAn increase in interest rates by the Fed based on a given and unchanged policy reaction function represents a ________ the aggregate demand curve, and higher interest rates resulting from an upward shift in the Fed's policy reaction function represents a ________ the aggregate demand curve. movement up; shift left of movement up; shift right shift left of; movement up shift left of; shift right of
- The Fed can directly affect long-term interest rate by setting the policy rate target range.True or False?The phenomenon that interest rates may be so low that increases in the money supply will have no impact on aggregate demand is called: monetary incapacitation. none of the other answers are correct the sterilization of money. the horizontality of demand. the liquidity trap.If the probability of losing your job remains ________, a recession would be a good time to purchase a home because the Fed usually ________ interest rates during this time.low; lowers low; raises high; lowers high; raises low; does not change
- After a series of measures to remedy the mortgage crisis that has beset the US economy, Ben Bernanke, chairman of the Board of Governors of the Federal Reserve and his colleagues are once again looking at cutting the central banks key interest rate as they hope that lowering the interest rates will give the economy a boost by encouraging investors and consumers to borrow and spend (Associated Press, n. pag.). The Fed is looking at slashing the interest rate by a full percent however, many economist believe that this is not the appropriate remedy for economic conundrum (Gavin, n. pag). According to many analysts, the issue of the economy regarding the mortgage is the lack of confidence by both the lender and the borrower. Even as the Fed resorts to drastic interest cuts, the first time the central bank has cut a full percentage point in one shot since 1982, this provides little help if lenders are not loaning money out of fear they will not be repaid and the borrowers…Chapter 10, Stabilization Policy with Different Objectives Think about two separate Federal Reserves- Fed A and Fed B. Fed A cares only about keeping the price level stable at ¯ P and Fed B cares only about keeping output and employment at their natural levels ¯ Y. Let long-run aggregate supply (LRAS) be a function of capital and labor, Y = F(K,L), short-run aggregate supply (SRAS) be a characterized by completely sticky prices at ¯ P, and aggregate demand (AD) characterized byY = MV P . Let each Fed have control over nominal money balances M. (a) Assume both economies are currently at the long run equilibrium. Draw the long-run aggregate supply, short-run aggregate supply, and aggregate demand in equilibrium. Howwould each Fed respond both in the short-run and in the long-run to the follow ing two scenarios? (b) An exogenous permanent decrease in the velocity of moneyV ↓. (c) An exogenous temporary increase in the price of oil ¯ P ↑. In other words, oil prices return to the…When the Fed targets the amount of money in the economy, interest rates become more variable. True False