Explain the traditional interest-rate channel for expansionary monetary policy. Explain how a tight monetary policy affects the economy through this channel
What will be an ideal response?
In the traditional channel, a monetary expansion reduces real interest rates, lowering the cost of capital and increasing investment spending. The increase in investment increases aggregate demand. A monetary contraction has the opposite effect, raising real interest rates, lowering investment and aggregate spending.
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A country undertakes a revaluation in order to
A) decrease its net exports. B) move to a flexible exchange rate system. C) lower the value at which its currency is pegged. D) increase its net exports.
In the above figure, suppose the government subsidizes the production of milk so that milk production increases to 8 million gallons per day
What is the size of the deadweight loss? (Hint: It is equal to the triangular area of negative consumer and producer surplus that results when output exceeds the efficient level.) A) $12.5 million B) $6.25 million C) $4.50 million D) $2.25 million
If Gorgeous Sands Resort has a constant marginal cost of $15,000 for each resort unit and a constant marginal cost of $750 for operating each resort unit, what is Gorgeous Sands Resort's long-run marginal cost per resort unit?
A) $750 B) $14,250 C) $15,000 D) $15,750
Expansionary fiscal policy increases the level of aggregate demand by
a. increasing consumption by raising disposable income through increased government purchases through increased spending by the federal government. b. increasing consumption by raising disposable income through raising after-tax profits through cuts in business taxes. c. increasing consumption by raising disposable income through increased federal grants to state and local governments. d. increasing consumption by raising disposable income through cuts in personal income taxes or payroll taxes.