State whether the following statement is true or false AND explain why: "A decrease in the discount rate will always cause a decrease in the federal reserve funds rate."
Indicate whether the statement is true or false
False. Since the discount rate is set above the federal funds rate, a decrease in the discount rate will only cause a decrease in the federal funds rate if the discount rate is decreased below the original federal funds rate level. If the decrease in the discount rate is such that the new rate is still above the federal funds rate, then the federal funds rate does not change, everything else held constant.
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Which of the following explains why frictional unemployment exists in an economy?
A) It arises because job search is completely a supply side phenomenon in the labor market, and firms make no attempts to advertise for the vacancies they have. B) It arises because most of the workers shirk at work. C) It arises because it takes time for an unemployed worker to find a firm with a well-matched job vacancy. D) It arises because unemployment benefits encourage workers not to look for jobs.
A minimum wage is an example of a
A) price floor. B) price ceiling. C) quantity quota. D) free market equilibrium.
Refer to the diagram. Constant returns to scale:
A. occur over the 0Q 1 range of output.
B. occur over the Q 1 Q 3 range of output.
C. begin at output Q 3 .
D. are in evidence at all output levels.
GDP tends to underestimate the productive activity in the economy because it excludes the value of output from:
A. Public transfer payments to households B. The consumption of fixed capital C. The underground economy D. Intermediate goods