Discuss what happens to the monetary policy reaction curve if the Fed were to lower their inflation target and why?
What will be an ideal response?
If the Fed were to lower their inflation target the monetary policy reaction curve would shift left. One point on the curve is the point where the inflation target is consistent with the long-run real interest rate. Since the long-run real interest rate has not changed, but the inflation target is lower, the entire curve would have to shift left or upwards so that the point reflecting the new inflation target and long-term real interest rate is on the curve.
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Most people buy insurance because they
a. are risk lovers b. enjoy the gamble c. are risk neutral d. are risk averse
Which of the following events strained belief in the economy's ability to self-correct by way of price adjustment, leading to the development of discretionary fiscal policy in the 1930s?
a. The American Civil War b. World War I c. The Gulf War d. The Great Depression
Which of the following correctly explains the crowding-out effect?
a) An increase in government expenditures decreases the interest rate and so increases investment spending. b) An increase in government expenditures increases the interest rate and so reduces investment spending. c) A decrease in government expenditures increases the interest rate and so increases investment spending. d) A decrease in government expenditures decrease the interest rate and so reduces investment spending.
Which statement is correct?
A. The operation of a market system eventually results in an equal distribution of income. B. Freedom of choice and enterprise are essential elements of the market system. C. Producers are "kings" in a market economy because they determine what is produced. D. The market system is efficient at allocation of resources but not in getting consumer goods to their most valued uses.