If the Fed wants to close a recessionary gap, should it buy or sell government securities? Why?
What will be an ideal response?
The Fed should lower the federal funds rate by purchasing government securities. When the Fed buys government securities, the quantity of money increases and quantity of loans increases. The increase in loans increases the supply of loanable funds so the real interest rate falls. As a result, consumption expenditure, investment, and net exports increase, which increases aggregate demand. The increase in aggregate demand increases real GDP, which is the policy required when real GDP is less than potential GDP, that is, when the economy has a recessionary ga
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Economists conclude that the only way to measure fairness is
A) to insure that the rules are fair. B) to insure that the result is fair. C) to insure that both the rules and the result are fair. D) to compare the allocatively efficient quantity to the equilibrium quantity. E) None of the above answers is correct.
A safety report is released that contends that sport utility vehicles are less prone to roll over during crashes than was previously thought. At the same time, the price of steel (used to produce motor vehicles) decreases. The net effect of these two incidents on the market for sport utility vehicles is a(n): a. indeterminate change in price and an increase in equilibrium quantity. b
indeterminate change in price and a decrease in equilibrium quantity. c. decrease in price and an increase in equilibrium quantity. d. increase in price and an increase in equilibrium quantity.
In a free market economy,
A. problems with externalities can never be solved. B. public goods will be efficiently provided by the private sector. C. detrimental externalities are rare. D. externalities can be solved by policy makers using market methods.
A tariff
a. lowers the domestic price of the exported good below the world price. b. keeps the domestic price of the exported good the same as the world price. c. raises the domestic price of the imported good above the world price. d. lowers the domestic price of the imported good below the world price.