In the above figure, assume the aggregate demand of the economy is AD2 and the Fed actions move aggregate demand to AD1. In this situation, the Fed has practiced
A. contractionary monetary policy.
B. expansionary monetary policy.
C. Keynesian fiscal policy.
D. irresponsible fiscal policy.
Answer: A
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The intersection of the aggregate demand and aggregate supply curves determines the ________.
A. equilibrium level of real domestic output and prices B. per-unit cost of production in the economy C. shape of the aggregate demand curve D. productivity level in the economy
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A firm that is a price taker faces a perfectly ______ demand curve.
A. horizontal B. vertical C. inelastic D. convex
If the Fed decides to buy T-bills, it increases the demand for T-bills. How will this affect the price of T-bills and the interest rate?
a. T-bill prices fall and interest rates fall. b. T-bill prices rise and interest rates rise. c. T-bill prices rise and interest rates fall. d. T-bill prices fall and interest rates rise.