Explain what happens to the money supply, interest rates, investment spending and GDP when the Fed makes open market bond purchases
What will be an ideal response?
When the Fed purchases bonds in the open market, they transfer money to the market, so the money supply increases. When the money supply increases, money becomes less expensive to obtain, which means interest rates are lower. Lower interest rates will encourage more investment spending, and when investment spending increases, GDP will increase.
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Which of the following has NOT been proposed as a possible economic solution to reducing the government deficit?
A) increasing taxes for everyone B) reducing expenditures C) increasing the number of entitlements D) increasing taxes for the rich
For a competitive firm
A) price is equal to marginal revenue. B) price is less than marginal revenue. C) demand is less than marginal revenue. D) demand is less than average revenue but equal to marginal revenue.
How do high marginal tax rates affect the economic prosperity of a nation?
a. They reduce the incentive of individuals to earn reported income. b. They encourage the nation's most productive citizens to emigrate to countries where taxes are lower. c. They discourage foreigners from investing in the country. d. All of the above are correct.
In a competitive price-searcher market, the firms will
a. be able to choose their price, and the entry barriers into the market will be low. b. be able to choose their price, and the entry barriers into the market will be high. c. have to accept the market price for their product, and the entry barriers into the market will be low. d. have to accept the market price for their product, and the entry barriers into the market will be high.