If the Fed's policy reaction function equals r = .02 + ?, where r is the real interest rate and ? is the inflation rate. If the real rate of interest is set at 5 percent, then the rate of inflation must be:
A. 4 percent.
B. 2 percent.
C. 3 percent.
D. 1 percent.
Answer: C
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Suppose we observe that the demand for eggs increases when people buy more potatoes. We can conclude that eggs and potatoes are
A) inferior goods. B) normal goods. C) complements. D) substitutes.
The Food and Drug Administration (FDA) is an agency that would enforce
A) social regulation. B) economic regulation. C) antitrust laws. D) price discrimination.
If real GDP declines for at least one-half year, the economy is experiencing a:
a. depression. b. decline. c. recession. d. growth recession. e. deflation.
The desire to keep assets in cash to take advantage of favorable changes in the value of non-cash assets is called the:
a. speculative demand for money. b. wealth demand for money. c. risk interest in money. d. precautionary demand for money. e. transactions demand for money.