According to proponents of the interest-rate-based monetary policy transmission mechanism, any increase in the money supply
A) causes velocity to increase, and so in the short run nominal Gross Domestic Product (GDP) must increase.
B) will increase Gross Domestic Product (GDP) only if interest rates fall and investment is sensitive to decreasing interest rates.
C) is effective in increasing Gross Domestic Product (GDP) only if it causes an outward shift of the aggregate supply curve.
D) will move the economy from the "liquidity trap" during times of recession if interest rates fall enough to stimulate private investment.
B
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The simple deposit multiplier is larger than the money multiplier
Indicate whether the statement is true or false
Explaining exchange rate behavior in the long run assumes that changes in price levels and real interest rates affect nominal exchange rates so that interest parity and PPP hold. Short-run deviations from PPP may be explained by an alternative theory called the:
a. relative PPP approach. b. asset approach to exchange rate determination. c. long-run equilibrium approach. d. law of one price.
Which diagram illustrates the effects on the peanut butter market, if severe flooding destroys a large portion of the peanut crop in the economy?
What will be an ideal response?
Which of the following is a goal of supply-side policy?
A. A steeper slope for the Phillips curve. B. A movement along the Phillips curve. C. A leftward shift in the aggregate demand curve. D. A lower rate of inflation at every unemployment rate.