What impact does the Fed's raising the interest rate have on the money supply and on the price level?
A. An increase in interest rates raises the money supply and eventually reduces prices.
B. An increase in interest rates reduces the money demand which will slow the growth in prices.
C. An increase in interest rates lowers the money supply and raises the money demand, which will neutralize price increases.
D. An increase in interest rates will increase investment spending and GDP, which will lower prices.
Answer: B
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The interest rate effect suggests that
A) an increase in the price level decreases the interest rate, which causes businesses and consumers to reduce desired spending. B) an increase in the price level increases the interest rate, which causes businesses and consumers to reduce desired spending. C) an increase in the price level increases the money supply, which causes businesses and consumers to increase desired spending. D) a decrease in the price level decreases the interest rate, which causes businesses and consumers to reduce desired spending.
Physical and human capital investments are
a. different in that the opportunity for economic profit is present for physical capital but not human capital decisions. b. different in that human capital decisions do not involve future income considerations while physical capital investments do. c. similar in that non-pecuniary considerations do not influence the choices of utility-maximizing decision makers in either case. d. similar in that both involve forgoing current income (and consumption) with the objective of increasing one's future income (and consumption).
A GDP price index of 130 in year 2 means that ________.
A. prices in year 2 are on average 130% higher than in the base year B. prices in year 2 are on average 13 times that in the base year C. nominal GDP is 130% higher than real GDP in year 2 D. prices in year 2 are on average 30% higher than in the base year
Which of the following scenarios are illustrated in the give PPC? (check all that apply)
a. An economy in full employment along the curve b. Unemployment at point W c. Output combination C is better than the output combination B d. Attainable combinations of both goods below the curve