An adverse supply shock would cause the FE line to
A. shift to the right.
B. shift to the left.
C. remain unchanged.
D. remain unchanged if the shock is temporary; shift to the right if the shock is permanent.
Answer: B
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Figure 32-3
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Figure 32-3 shows the impact of deficit spending and the corresponding economic expansion on the demand curve for money. If the Federal Reserve does not want interest rates to rise, it will
A. shift the money supply curve to the right by monetizing the deficit. B. shift the money supply curve to the left by open-market sales of government securities. C. maintain the current targets for both M1 and M2 money stocks. D. engage in contractionary monetary policy, such as increases in the discount rate.
The effectiveness of automatic stabilizers is limited by the fact that
A. Congress usually acts slowly in legislating changes in tax rates. B. The stabilizers tend to raise the average price level regardless of the phase of the business cycle. C. The offset that the stabilizers provide to a change in private spending is less than the change in private spending. D. Transfer payments and subsidies increase during inflation and decrease during recessions.
Suppose the nominal yield during the next two years was expected to remain at 10%, but the yield on a one-year security was 10% and on a two-year security was 12%. Investors would:
a. Borrow for one year, invest for two years, and at the end of the first year, roll over the loan. b. Probably do nothing, because markets are efficient, which means there is no way to arbitrage them. c. Borrow for two years, invest for one year, and then roll over the investment at the end of the first year. d. Borrow for two years and invest for two years, but at the end of the first year, re-borrow and re-invest at the market rate. e. Borrow for one year and invest for one year, but at the end of the first year, re-borrow and re-invest the borrowed funds at the expected rate.
If monetary policy is fully anticipated by workers and firms, then it has no effect on the level of output; it affects only the price level
Indicate whether the statement is true or false