Describe the origins of the Fed and the arguments about the independence of the Fed.
What will be an ideal response?
The Fed was established in 1914 as a response to several financial panics in the preceding decades. It was founded to act as a lender of last resort and to be able to keep the money supply from decreasing rapidly in times of economic downturn. One of the Fed’s main goals today is the maintenance of stable prices and the reduction of inflation. Many economists believe that the Fed should be insulated from political pressures, which are usually biased toward more expansionary monetary policies and, therefore, inflation. Most current research shows that countries with independent central banks have lower inflation rates compared to countries where the central bank is more subject to direct control by politicians.
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In the short run, a perfectly competitive firm
A) must make an economic profit. B) must incur an economic loss. C) must make zero economic profit. D) might make an economic profit, zero economic profit, or incur an economic loss. E) None of the above answers is correct.
As inflation increases, for any fixed nominal interest rate, the real interest rate:
A. decreases. B. decreases by less than the increase in inflation. C. remains the same, that's why it is real. D. also increases.
A stronger U.S. dollar leads to ________ in SRAS and ________ in AD simultaneously.
A. a leftward shift; a rightward shift B. a leftward shift; a leftward shift C. a rightward shift; a leftward shift D. a rightward shift; a rightward shift
Using the concentration ratio to measure the degree of competition
A. may overstate the degree of competition because it ignores imported goods. B. may overstate the degree of competition because inter-industry competition is ignored. C. may understate the degree of competition because it ignores imported goods. D. may understate the degree of competition because market share changes annually.