Suppose you transfer $2,000 from your money market mutual fund account to your checking account. What is the immediate impact of this transfer on M1 and M2?
What will be an ideal response?
Money market mutual fund balances are part of M2, but are not part of M1. Checking account balances are included in both money supply measures. Thus M1 will increase by $2,000 with the increase in checking account balances. M2 will not change, as the $2,000 increase in checking account balances is offset by the $2,000 decrease in mutual fund accounts.
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The self-correcting tendency of the economy means that falling inflation eventually eliminates:
A. exogenous spending. B. recessionary gaps. C. expansionary gaps. D. unemployment.
A contractionary monetary policy decreases the money supply and the interest rate, which decreases investment and output.
Answer the following statement true (T) or false (F)
All of the following are resources EXCEPT
A) doctors because they perform services. B) the land the Statue of Liberty sits on. C) the computer in the student computer lab. D) money.
Capital flight refers to the fact that both human and financial capital
A. flow into developing countries to build much needed infrastructure. B. leave developing countries in search of a higher rate of return. C. flow into developing countries to invest in risk free investments. D. leave developed countries in search of a higher rate of return.