A monetarists would expect an increase in government spending to have a strong effect on output only if the spending increase was
a. financed by an increase in the money supply.
b. financed by a sale of bonds.
c. financed by an increase in taxes.
d. accompanied by a higher in the deficit.
A
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A commercial bank has actual reserves of $1 million and checkable-deposit liabilities of $9 million, and the required reserve ratio is 10%. The excess reserves of the bank are
A. $900,000. B. $1 million. C. $100,000. D. $50,000.
Which of the following are the most frequently utilized tools of fiscal policy in the United States?
a. Indirect business taxes b. Corporate income taxes c. Inheritance taxes d. Personal income taxes
A company's net present value:
A. is the current value of the company’s expected future cash flows. B. is a measure of the book value of that company. C. tells you the "correct" price of shares in the company. D. adds up the value of all the assets a company currently owns.
Imagine that the Fed has unexpectedly lowered the reserve requirement, greatly increasing the amount of money in circulation. Explain what a rational expectations theorist would predict should happen in this situation over both the short run and the long run. Then give an example of what a critic of rational expectations theory would predict instead.
What will be an ideal response?