Oil prices have risen temporarily, due to political uncertainty in the Middle East. An advisor to the Fed suggests, "Higher oil prices reduce aggregate demand. To offset this we must increase the money supply
Then the price level won't need to adjust to restore equilibrium, and we'll prevent a recession." Analyze this statement using the IS—LM model.
This is a change in the FE line, not aggregate demand, so the policy is incorrect. Instead, to keep the price level fixed, money supply should decrease, so output falls and the real interest rate rises.
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If the quantity of goods and services produced in an economy decreases,
A) it may be possible for nominal GDP to increase. B) real GDP will certainly increase. C) nominal GDP will certainly decrease. D) it may be possible for real GDP to increase.
If a developing country institutes a currency board, it relinquishes control over having
A) monetary policy autonomy. B) exchange rate stability. C) freedom of capital movement. D) freedom of labor movement. E) all of its funds.
Say the bus authority in your city increased the typical bus fare from $1.00 to $1.50 and that due to this increase total revenue increased by 20%. Based on this we know that the price elasticity of bus rides in your neighborhood is (assume demand curve is linear):
A. 0.4. B. 0.8. C. 1.5. D. 1.
The absolute price elasticity of demand for a vertical demand curve
A) is infinite. B) is 1.0. C) is 0. D) depends on where one is on the demand curve.