Refer to Figure 14.3. Suppose the economy is initially at long-run equilibrium and the Fed increases the target inflation rate, and to hit this rate, it must reduce the real interest rate. This is best represented by an initial movement from
A) point A to point B.
B) point A to point D.
C) point A to point C.
D) point B to point C.
A
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If a single bank has $25,000 in excess reserves and the desired reserve ratio is 20 percent, what is the maximum this bank can loan?
A) $125,000 B) $20,000 C) $5,000 D) $30,000 E) $25,000
Suppose the Fed bought $150 million of U.S. securities from security dealers. The reserve requirement is 20 percent, and there are no initial excess reserves. A few weeks later, if the public's holdings of currency are constant and the banks have loaned all excess reserves, the money supply will increase by:
a. $150 million. b. $300 million. c. $600 million. d. $750 million.
Which of the following is an example of the shoeleather costs of inflation?
a. Tito's Restaurant has to print new menus to update its prices compared to other prices in the economy b. Beto sells stocks and earns a real capital gain of $50, but is taxed for the nominal capital gain of $75 c. During Bolivia's hyperinflation, workers rushed to immediately convert their wages from pesos to black-market dollars d. The after-tax real interest rate is lower when inflation is higher
The major difference between the Keynesian model and the classical theory of employment is that
A. the interest rate will not always equalize savings and investment. B. not everything produced will necessarily be purchased. C. saving and investing are done by different people for different reasons. D. wages and prices are assumed to be flexible downwards.