Refer to Table 26-4. Suppose the following table illustrates the values of real and potential GDP and the price level if the Fed does not vote to change their current policy to be more contractionary or expansionary
If the Fed wants to keep real GDP at its potential level in 2017, should the Fed use a contractionary or expansionary policy? How should it conduct open market operations to achieve its goal?
The information in the table indicates that if the Fed does not vote to change their current policy to be more contractionary or expansionary, then real GDP will fall below potential GDP in 2017. To keep the economy at potential GDP in 2017, the Fed should use expansionary monetary policy. This would mean that the Fed should direct the trading desk to buy U.S. Treasury bills. If this is done, reserves in the banking system will increase, banks can increase the number of loans, and this should raise the money supply and lower the interest rate.
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A) lower; increases B) lower; decreases C) higher; decreases D) lower; does not change E) higher; increases
Price ceilings have to be set above the undistorted market equilibrium price in order to have any impact.
Answer the following statement true (T) or false (F)
In situations in which prices cannot be used to signal relative scarcities of goods, which of the following can serve as a rationing mechanism?
A) queuing B) political power C) random assignment D) all of the above
Suppose that no externalities are generated by the production of chickens. If the price of chickens is equal to private marginal cost of producing chickens, then
a. that price is lower than the price associated with an efficient allocation of resources b. that price is higher than the price associated with an efficient allocation of resources c. that price is precisely the price associated with an efficient allocation of resources d. less than an efficient quantity is being produced e. more than an efficient quantity is being produced