Discuss why the Fed can either both a quantity and a price (interest rate) target unlike other monopolies.
What will be an ideal response?
The Fed sets monetary policy primarily through the IOER rate. This allows the Fed to raise the interest rate in the economy without altering the supply of reserves because the amount of reserve supply is greater that reserve demand at IOER.
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Suppose that an economy is currently producing at a point that lies inside of its production possibilities set. Which of the following would best explain this circumstance?
A) The prevailing level of technology prevents the economy from producing at a point closer to the frontier of the production possibilities set. B) The economy does not have enough resources to produce at a point closer to the frontier of the production possibilities set. C) The economy is experiencing a high level of unemployment. D) Any of the above statements could explain this situation. E) None of the above statements could explain this situation.
Katy has an ailing and wealthy, but miserly, parent. The parent has told Katy that if she takes care of him until he dies, then she will get $100,000 in inheritance
Katy knows that there is only a 50-50 chance that her father will leave her the full amount or nothing. To take care of her father, she has to take a job that pays $30,000 where her current job pays her $70,000 per year. If her father is expected to pass away in 1 year, what is Katy's expected wealth if she takes care of her father? A) $130,000 B) $90,000 C) $80,000 D) $70,000
If rational workers and firms know that the Federal Reserve is following a contractionary monetary policy, they will expect inflation to ________ and will adjust wages so that the real wage ________
A) increase; decreases B) decrease; increases C) increase; remains unchanged D) decrease; remains unchanged
Research supporting the new Keynesian model finds that prices are ________
A) slow to adjust to aggregate demand shocks B) changed very frequently C) changed only infrequently D) not as flexible as wages