What does it mean to "monetize the deficit"? Why is it important in discussions of fiscal policy? Use an appropriate diagram to illustrate your answer
If the Fed wishes to keep interest rates low during a budget deficit, it must create money to expand the supply. While interest rates increase the effectiveness of fiscal policy (a greater impact on GDP), there is also a danger that the increase in money will trigger inflation. Although the Fed has not monetized much debt, there is always the danger that a central bank will do so under pressure from elected politicians. Latin America and Russia provide examples of what monetization can lead to. The diagrams illustrating the effects of monetization should resemble Figure 16-8 in the text, showing the effects on the economy of an increasing money supply.
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The above table has the private demand for loanable funds and the private supply of loanable funds schedules
If the government budget surplus is $200 billion, and there is no Ricardo-Barro effect, the equilibrium real interest rate is ________ and the equilibrium quantity of loanable funds is ________. A) 8 percent; $700 billion B) 4 percent; $700 billion C) 4 percent; $500 billion D) 8 percent, $500 billion E) 6 percent; $600 billion
Which of the following is TRUE of a natural monopoly?
A) Its long-run average cost curve slopes upward as it intersects the demand curve. B) Economies of scale exist to only a very low level of output. C) Economies of scale allow one firm to supply the entire market at the lowest possible cost. D) The firm is not protected by any barrier to entry.
Exhibit 2-15 Production possibilities curve
In Exhibit 2-15, the economy will experience the most future economic growth if it chooses what point now?
A. J. B. K. C. M. D. N.
If the supply of money increases as a result of an open market ______ of securities by the Fed, the interest rate will ______.
a) sale; increase b) sale; decrease c) become flatter d) none of the above