Monetary policy administered by the Fed is the principal method of softening the effects of the business cycle because _____.
(A) The outside lag for fiscal policy is shorter than the outside lag for monetary policy.
(B) There are more political complications with determining and implementing fiscal policy.
(C) Fiscal policy is not effective at easing the fluctuations of the economy.
(D) Monetary policy has the shortest total delay in implementing and achieving a planned outcome.
Answer: (B) There are more political complications with determining and implementing fiscal policy.
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The opportunity cost of holding excess reserves is the federal funds rate
A) minus the discount rate. B) plus the discount rate. C) plus the interest rate paid on excess reserves. D) minus the interest rate paid on excess reserves.
The consumer price index overestimates inflation because it
A. allows consumers to move along a given indifference curve from one year to the next. B. uses the second year's market basket as the base rather than the first year's basket. C. measures the cost of a market basket in the second year that has too many units of the most inflated items. D. compares prices of what consumers actually buy rather than a fixed basket of goods.
Suppose the people in my town hear a rumor that their local bank is in trouble and all rush to withdraw money from the bank. This is referred to as:
A. a moral hazard problem. B. leverage. C. a bank run. D. a bad precedent problem.
Explain the difference between a secured and an unsecured loan, and the interest rate you would expect to see charged on each (all other factors equal).
What will be an ideal response?