In the fall of 2008, the Federal Reserve reduced its target for the federal funds rate dramatically. The Fed likely made this decision because it believed:
A. there was threat of a recession and was trying to stimulate the economy.
B. inflation might become a problem and was moving to head it off.
C. savers are not being given enough encouragement to save.
D. unemployment was too low and needed to be boosted.
Answer: A
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Assume the economy is initially in equilibrium with real GDP equal to potential GDP
Other things equal, if the economy enters a recession and there are no automatic stabilizers, the IS curve would shift to the ________, and the shift would be equal to ________. A) right; decline in investment spending B) left; decline in investment spending C) right; decline in investment spending times the multiplier D) left; decline in investment spending times the multiplier
Compared to the past, FOMC meetings are now much more transparent. How might this transparency impact the effectiveness of monetary policy actions?
A) The transparency helps make the Fed's actions more credible and should help make policy actions more effective. B) The transparency undermines the effectiveness since financial markets can more quickly adjust their behavior to fight the policy actions. C) The transparency counteracts the secrecy in which fiscal policy is enacted, and therefore decreases its effectiveness. D) The transparency lengthens policy lags, so monetary policy takes longer to implement and take effect.
Generally, expenses on toothpaste are a small part of a consumer's budget, so the demand for toothpaste is more likely to be
A) elastic. B) inelastic. C) unit elastic. D) perfectly elastic.
An insolvent bank's assets are worth less than its liabilities
a. True b. False Indicate whether the statement is true or false