If the Fed decides to sell T-bills, it increases the supply of T-bills. How will this affect the price of T-bills and the interest rate?
A. T-bill prices fall and interest rates fall.
B. T-bill prices rise and interest rates rise.
C. T-bill prices rise and interest rates fall.
D. T-bill prices fall and interest rates rise.
Answer: D
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An increase in the price level causes a movement down the aggregate demand curve
Indicate whether the statement is true or false
A positive externality arises when a person engages in an activity that has
a. an adverse effect on a bystander who is not compensated by the person who causes the effect. b. an adverse effect on a bystander who is compensated by the person who causes the effect. c. a beneficial effect on a bystander who pays the person who causes the effect. d. a beneficial effect on a bystander who does not pay the person who causes the effect.
A policymaker against stabilizing the economy would be likely to believe
a. policymakers should "do no harm". b. there are no obstacles to the practical application of policy in real life. c. policy lags are short enough that implementing policy changes in response to recession is not too risky. d. policy mitigates the magnitude of economic fluctuations.
Proponents of fixed exchange rates, who argue that these rates eliminate uncertainty and therefore promote international trade, sometimes fail to recognize:
A. that international trade is bad for the economy and should not be promoted. B. that exchange rates do not matter to businesses, so the uncertainty has no impact. C. that fixed exchange rates are more volatile than flexible exchange rates. D. that fixed exchange rates may not remain fixed forever.