If the price of money is determined by supply and demand, what impact should a decrease in the supply of money (given steady money demand) have on the price of money and the rate of inflation?
What will be an ideal response?
A decrease in the supply of money would drive the price of money higher. That is, it would take less money to purchase the same quantity of goods. The result is a fall in the price of goods, which is deflation.
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If the economy has an MPC of 0.8, by how much will a $50 billion increase in government purchases increase GDP? By how much will a $50 billion increase in taxes decrease GDP?
What will be an ideal response?
The largest component of M1 is
A) currency and coins. B) traveler's checks. C) transaction deposits. D) time deposit.
Which of the following statements regarding the use of gold as money is false?
A) The money supply would be easy to control because of the predictability of new gold discoveries. B) It is durable. C) It has value other than money. D) It is acceptable to traders.
Compared with a perfectly competitive firm facing the same costs, long-run equilibrium for a monopolistically competitive firm will result in
A) a higher price and greater output. B) a lower price and less output. C) a higher price and less output. D) a lower price and greater output.