If a bank purchases government securities rather than lends funds, the:
a. M2 money supply does not rise.
b. M2 money supply rises, but not by as much as when the funds are lent.
c. M2 money supply rises by more than would be the case if the funds were lent.
d. M2 money supply rises by the same amount as if they were lent.
.D
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Based on the figure below. Starting from long-run equilibrium at point C, a decrease in government spending that decreases aggregate demand from AD1 to AD will lead to a short-run equilibrium at__ creating _____gap.
A. B; no output B. D; an expansionary C. B; recessionary D. D; a recessionary
If governments promise to bail out the financial system in the event of a crisis, this creates a moral hazard problem. Describe this problem
What will be an ideal response?
Banks try to keep their level of excess reserves low because
a. the Fed charges a penalty for holdings of excess reserves. b. they are concerned that the money multiplier will become too large. c. they wish to maximize profits. d. bank regulators levy fines on the amount of excess reserves.
An upward-sloping labor-supply curve implies that an increase in the wage induces
a. firms to decrease the quantity of labor they hire. b. firms to increase the quantity of labor they hire. c. workers to increase the quantity of labor they supply. d. workers to increase the quantity of leisure they enjoy.