Explain the difference between the Fed following discretionary policy and the Fed following a rules strategy
What will be an ideal response?
Discretionary policy occurs when policymakers conduct policy in any way that it believes will achieve its goals. In the case of the Fed, discretionary policy means the Fed conducts monetary policy in any way it believes it will achieve its goals of price stability and high employment.
A rules strategy occurs when policymakers conduct policy by following specific and publicly announced guidelines to achieve its goals. In the case of the Fed, following a monetary rule is an attempt by the Fed to follow specific and publicly announced guidelines for monetary policy in order to achieve its goals of price stability and high employment.
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Graph typical total, average, and marginal cost curves and explain how their shapes are influenced by the law of diminishing returns. Graph TC on a separate graph, AC and MC on a second graph.
What will be an ideal response?
Assume that the government increases spending and finances the expenditures by borrowing in the domestic capital markets. If the nation has low mobility international capital markets and a flexible exchange rate system, what happens to the quantity of real loanable funds per time period and the nominal value of the domestic currency in the context of the Three-Sector-Model?
a. The GDP Price Index rises, and nominal value of the domestic currency falls. b. The GDP Price Index falls, and nominal value of the domestic currency rises. c. The GDP Price Index rises, and nominal value of the domestic currency remains the same. d. The GDP Price Index rises, and nominal value of the domestic currency rises. e. There is not enough information to determine what happens to these two macroeconomic variables.
Starting from long-run equilibrium, a war that raises government purchases results in ________ output in the short run and ________ output in the long run.
A. lower; potential B. higher; potential C. higher; higher D. lower; higher
Table 1.2 shows the hypothetical trade-off between different combinations of Stealth bombers and B-1 bombers that might be produced in a year with the limited U.S. capacity, ceteris paribus.Table 1.2Production Possibilities for BombersCombinationNumber of B-1 BombersOpportunity cost(Foregone Stealth)Number of Stealth BombersOpportunity cost (Foregone B-1)A20Na195 B35 180 C45 150 D50 100NAOn the basis Table 1.2, if the economy is currently producing at point C, what is the opportunity cost of producing at point B?
A. 180 Stealth bombers. B. 35 Stealth bombers. C. 45 B-1 bombers. D. 10 B-1 bombers.