Suppose a presidential candidate makes a statement in a debate whereby he promises that he would encourage the Fed to permanently lower the unemployment rate to 3%
His opponent claims that this type of policy idea is mired in the 1960s and would only cause inflation. Explain what the opponent means.
An increase in the money supply will raise GDP above potential GDP and lower the unemployment rate below the natural rate in the short run. To attempt to keep the level of GDP above potential continuously in the long run, and subsequently keep the unemployment rate permanently below the natural rate, the Fed would have to continuously keep raising the money supply. This would be inflationary.
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An increase in the domestic interest rate relative to other interest rates should
A) increase net exports. B) increase investment spending. C) decrease consumption spending. D) increase government spending.
An in-kind transfer is a
A. transfer made by people to be kind to others. B. transfer of wealth. C. transfer of goods and services instead of cash. D. system of clearing checks by local banks.
Gomer decides to spend an hour playing basketball rather than studying. His opportunity cost is:
a. nothing, because he enjoys playing basketball more than studying. b. the increase in skill he obtains from playing basketball for that hour. c. the benefit to his grades from studying for an hour. d. nothing, because he had a free pass into the sports complex to play basketball.
The Federal Reserve
a. was created in 1913. b. is the U.S.'s central bank. c. has other duties in addition to controlling the money supply. d. All of the above are correct.