When there is a recessionary gap, inflation will ________, in response to which the Federal Reserve will ________ real interest rates, and output will ________.
A. decline; lower; decline
B. increase; raise; decline
C. decline; lower; expand
D. decline; raise; decline
Answer: C
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If we look at the components of M2, we find that
A) money market funds are the largest component. B) savings deposits are the largest component. C) currency is the largest component. D) banks' reserves are the largest component. E) loans are the largest component.
If banks cannot lend all of their excess reserves,
a. the potential money multiplier increases b. the actual money multiplier decreases c. the potential money multiplier decreases d. the amount of loans by the bank increases e. demand deposits decrease
If the Federal Reserve wants to decrease the money supply, it should:
A. conduct open-market sales. B. decrease reserve requirements. C. decrease the interest that it pays on reserves. D. decrease the discount rate.
Suppose that the income elasticity of demand for new clothes is positive. Other things being equal, which of the following statements is correct?
A. New clothes are a normal good. B. The quantity demanded of new clothes decreases as a consumer's income declines. C. There exists a positive relationship between income and the demand for new clothes. D. All of these