An increase in expected inflation is likely to cause
A) a decline in the demand for real balances.
B) an increase in the demand for real balances.
C) no change in the demand for real balances.
D) no change in the demand for real balances only if the income elasticity of real money demand is zero.
A
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The self-correcting tendency of the economy means that rising inflation eventually eliminates:
A. unemployment. B. exogenous spending. C. recessionary gaps. D. expansionary gaps.
The zero lower bound on the nominal interest rate arises because
A) if the nominal interest rate were less than zero, an arbitrage opportunity would exist. B) bank profits must be zero. C) the government would not allow it. D) the economy would crash.
The decline in output at the onset of the Great Depression was caused primarily by
a. a positive demand shock b. a negative demand shock c. a positive supply shock d. a negative supply shock e. simultaneous shocks to supply and demand
If the current market federal funds rate equals the target rate and the demand for reserves increases, the likely response in the federal funds market will be:
A. an increase in the market federal funds rate. B. a decrease in the market federal funds rate. C. a market federal funds rate that will equal the target rate. D. nothing; reserve supply is so high that the market federal funds rate will be unchanged.