The major criticism of the view that expectations are formed adaptively is that
A) this view ignores that people use more information than just past data to form their expectations.
B) it is easier to model adaptive expectations than it is to model rational expectations.
C) adaptive expectations models have no predictive power.
D) people are irrational and therefore never learn from past mistakes.
A
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A banking panic is an episode in which:
A. commercial banks, concerned about high interest rates, rush to borrow at the Federal Reserve discount rate. B. commercial banks, fearing Federal Reserve sanctions, unwillingly participate in open-market operations. C. depositors, afraid of increasing interest rates, attempt to engage in discount-window borrowing at the Federal Reserve. D. depositors, spurred by news or rumors of possible bankruptcy of one bank, rush to withdraw deposits from the banking system.
If the marginal propensity to save is 0.4, then a $2 million increase in disposable income will
A) increase consumption by $5 million. B) decrease consumption by $1.2 million. C) increase consumption by $1.2 million. D) decrease consumption by $5 million.
The point of tangency between a consumer's budget constraint and his or her indifference curve represents
a. complete satisfaction for the consumer. b. the equivalence of prices the consumer pays. c. constrained utility maximization for the consumer. d. the least he or she can spend.
Identify the four major methods the Fed uses to control the money supply. Give two examples of situations in which the Fed might use one of these methods and explain why that method is best for the given situation.
What will be an ideal response?