One problem with using monetary policy to address "bubbles" in asset markets is that:
A. monetary policy is well-suited for addressing the problem of inappropriately high asset prices.
B. reducing the real interest rate to deal with the bubble could lead to inflation.
C. the Federal Reserve is not interested in stabilizing output.
D. doing so presupposes that the Federal Reserve is better than financial-market professionals at identifying bubbles.
Answer: D
You might also like to view...
The Fed raises the federal funds rate. Which of the following changes occurs most rapidly?
A) Exchange rate rises. B) Consumption expenditure decreases. C) Aggregate demand decreases. D) Real GDP growth decreases. E) Inflation rate decreases.
In the European Monetary Union, the supply of euros
A) is managed by the individual central banks of the member countries. B) is managed by the European Central Bank. C) is determined by market forces. D) automatically varied in response to short-run fluctuations in the exchange rates of the member nations.
In Corinthia, the marginal propensity to consume is 0.7, base consumption is $500, the tax rate is 20 percent of income, national income is $3,000 . investment spending is $1,000 . government spending is $1,000 . export earning is $2,000 . and import spending is $500 . When the real GDP of Corinthia is zero, its aggregate expenditure equals _____
a. $4,000 b. $7,500 c. $8,900 d. $10,000
Starting from long-run equilibrium, a war that raises government purchases results in ________ output in the short run and ________ output in the long run.
A. lower; potential B. higher; potential C. higher; higher D. lower; higher