In 2005–2006, the Fed increased interest rates in an attempt to halt inflation. What was the most likely effect of raising interest rates on velocity?
A. Velocity will decrease.
B. Velocity will increase.
C. Velocity will remain constant.
D. Velocity is unrelated to saving accounts.
Answer: B
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If the price of ice cream increases substantially (ceteris paribus), the equilibrium quantity of hot fudge sauce, a complement, is likely to:
a. increase, and the equilibrium price of hot fudge is likely to decrease. b. increase, and the equilibrium price of hot fudge is likely to increase. c. decrease, and the equilibrium price of hot fudge is likely to decrease. d. decrease, and the equilibrium price of hot fudge is likely to increase.
Is peak pricing economically efficient? Explain. Give an example to illustrate your answer.
What will be an ideal response?
What is one policy a government might use to redistribute income?
a. establish a set of price controls b. strengthen education standards c. institute a progressive tax system d. raise interest rates on borrowing
Using Figure 1 above, if the aggregate demand curve shifts from AD2 to AD3 the result in the short run would be:
A. P1 and Y2. B. P2 and Y3. C. P3 and Y1. D. P2 and Y2.