In a simplified banking system subject to a 25 percent required reserve ratio, a $1,000 open-market purchase by the Fed would cause the money supply to:
A. increase by $1,000.
B. decrease by $1,000.
C. decrease by $4,000.
D. increase by $4,000.
Answer: D
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Which of the following is the correct expression for the approximate expected real interest rate?
A) r = i + B) r = i - C) r = i/ D) r = i
Government may make it possible
A) to create a network externality. B) to find 'winners' in the stock market. C) for a firm to become a monopoly. D) all of these choices.
If the interest rate increases, the opportunity cost of holding money __________, and the quantity demanded of money __________
A) does not change; does not change B) increases; also increases C) decreases; increases D) increases; decreases E) decreases; also decreases
If policymakers are concerned that the economy is in danger of rising inflation because aggregate demand is increasing faster than aggregate supply, the appropriate fiscal policy response is to
A) increase taxes. B) increase government spending. C) use expansionary fiscal policy. D) increase interest rates.