Illustrate the effectiveness of monetary policy with fixed exchange rates
What will be an ideal response?
The required intervention to maintain the fixed exchange rate will undo any effect on income of an increase or decrease in the money supply. Illustrate by shifting LM curve and then explaining how intervention will return LM to original position.
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If the economic growth rate SLOWS from 5% to 1%, the simple accelerator hypothesis suggests that
A) investment will continue to rise as output increases. B) investment will fall as output increases. C) investment will accelerate since output growth is positive. D) None of the above is correct.
You use $45,000 of your own money to start an espresso stand. During the first year you earn a 10% return on that investment. If the current interest rate is 8%, you earn an economic profit of
A. -$900. B. $100. C. $500. D. $900.
Because many resource prices are set by long-term contracts, in the short run
a. costs will increase by more than product prices when demand increases. b. costs will decrease when the demand for products increases. c. costs will increase by less than product prices when demand increases. d. costs will decrease by more than product prices when demand decreases.
Assume that the real rate of interest is 5 percent and a lender charges a nominal interest rate of 15 percent. If a borrower expects that the rate of inflation next year will be 10 percent and the actual rate of inflation next year is 10 percent,
A. the lender benefits from inflation, while the borrower loses from inflation. B. the borrower benefits from inflation, while the lender loses from inflation. C. neither the borrower nor the lender benefits from inflation. D. both the borrower and the lender lose from inflation.