Other than the incentive for the federal government to accrue debt, what other problems are associated with the Fed keeping interest rates low.
What will be an ideal response?
Keeping interest rates extreme low can have negative effects on those approaching retirement. An individual who has saved for retirement with the plans to live off the interest payments generated by his/her investments may find themselves spending down their wealth due to low interest payments. On the larger scale, pension plans and retirement funds are also hurt by the low interest rates. Some institutions made agreements with workers to invest their retirement money. These funds have not earned the expected rate due to the financial crisis and low interest rates. For these reasons, it is unlikely that workers will receive the amount they were promised.
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Elasticity is a measure of the responsiveness of change in quantity demanded to a change in price.
Answer the following statement true (T) or false (F)
In the Mundell-Fleming model, all of the following are true EXCEPT:
a. the intersection of the IS and LM curves determine the equilibrium exchange rate. b. the BP curves position is determined by the exchange rate. c. the policy choice between fixed and floating exchange rates shifts the BP curve. d. the extent of capital mobility determines the slope of the BP curve. e. all of the above are true.
Technological advances: a. Shift only the short run aggregate supply curve to the right
b. Shift only the long run aggregate supply curve to the right. c. Shift both short run and long run aggregate supply curves to the right. d. Do none of the above
If fractional reserve banking exists, then:
A. the money multiplier is equal to 1. B. banks need only keep a portion of each deposit on hand. C. lending would be curtailed to nearly zero. D. money cannot be created in the economy through banks.