Assume the Fed decreases the money supply and the demand for money curve is fixed. In response, people will:
A. sell bonds, thus driving up the interest rate.
B. buy bonds, thus driving down the interest rate.
C. buy bonds, thus driving up the interest rate.
D. sell bonds, thus driving down the interest rate.
Answer: A
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Suppose that the quantity of cars demanded exceeds the quantity of cars supplied. We would expect that
A) the price of cars will increase. B) the price of cars will decrease. C) the supply will increase (supply will shift to the right) to meet the demand. D) the demand will decrease (demand will shift to the left) to meet the supply.
All of the following are costs of expected inflation except
A) seigniorage. B) menu costs. C) velocity costs. D) tax distortions.
The behavior of the perfectly competitive firm
A. theoretically leads to an inefficient allocation of resources. B. maximizes the benefits to consumers, given the resources available to the economy. C. reduces output in order to raise prices in the short term. D. results in excess capacity and inefficiency.
Suppose a Chinese firm moves its final assembly line to France and then ships the final products to other members of the EU trading bloc. This is an example of
A. trade diversion. B. trade detection. C. trade restriction. D. trade deflection.