After the Fed raises the federal funds rate, the effects on the economy can take up to two years before they occur. Is this statement accurate? Lay out the time path of how an increase in the federal funds rate affects the economy
What will be an ideal response?
The statement is accurate. While there are immediate, short-term effects from the Fed raising the federal funds rate, there are also long-term effects. Immediately, short-term interest rates and the exchange rate rise. Within a few weeks to months the quantity of money and supply of loanable funds decreases and the long-term interest rate rises. Up to a year later consumption expenditure, investment, net exports, aggregate demand, and the real GDP growth rate all decrease. Finally, around two years later the inflation rate decreases.
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Refer to Figure 15-16. In the absence of any government regulation, the profit-maximizing owners of this firm will produce ________ units and charge a price of ________
A) Q3 units; P3 B) Q1 units; P4 C) Q2 units; P2 D) Q0 units; P0
Privatization is a process of
a. breaking up large government companies into small government companies b. selling government companies to private individuals c. consolidating small government companies into larger ones d. government buying private companies e. none of the above
The above figure shows the marginal benefit from pollution for two firms. If each firm receives a marketable permit to produce 25 units of pollution, which one of the following is most likely to happen?
A) Firm B will sell some pollution rights to firm A. B) Firm A will sell some pollution rights to firm B. C) Firm A will produce all 50 units of pollution. D) Both firms will produce 25 units of pollution.
The aggregate demand curve implies a vertical shape for the Phillips curve trade-off between inflation and unemployment
a. True b. False Indicate whether the statement is true or false