How does conventional monetary policy work in the short run?
A. Fed sets target FFR, open market operations, bank reserves and money supply changes, market FFR and other short run interest rates change, consumption changes, and AD changes
B. fed prints money, inflation increases, money loses value
Ans: A. Fed sets target FFR, open market operations, bank reserves and money supply changes, market FFR and other short run interest rates change, consumption changes, and AD changes
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Luigi is willing to lend Klaus $5,000 for one year at a nominal rate of interest of 7%. Both Luigi and Klaus expect the rate of inflation to be 2% in the next year. How much additional purchasing power will Luigi have in one year?
A. $350 B. $5,350 C. $5,250 D. $250
Which of the following is most likely if there is a war that destroys a country's stock of capital to a level below the steady state equilibrium?
A) The GDP will be equal to the steady-state equilibrium level of GDP. B) The investment in capital will suffice to replenish the depreciating capital. C) The GDP will be more than the steady-state equilibrium level of GDP. D) The investment in capital will be lower than the amount required to replenish the depreciating capital.
When the production of a good has a marginal external cost, which of the following occurs in an unregulated market?
i. Overproduction relative to the efficient level will occur. ii. The market price is less than the marginal social cost at the equilibrium quantity. iii. A deadweight loss occurs. A) i only B) ii only C) iii only D) i and ii E) i, ii, and iii
Suppose that a 20% increase in the price of product X generates a 15% increase in the quantity of X supplied. The price elasticity of supply for good X is
A. less than 1 and therefore supply is inelastic. B. positive and therefore X is a normal good. C. negative and therefore X is an inferior good. D. more than 1 and therefore supply is elastic.