Explain why the Fed must choose between targeting the money supply or targeting interest rates when money demand increases
If the money supply target is maintained when money demand increases, interest rates must rise; if an interest rate target is maintained when money demand increases, the money supply must increase. Targeting the money supply is therefore inconsistent with targeting interest rates.
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Suppose Sam's Shoe Co. makes one kind of shoe. An example of a fixed cost for this company would be:
A. the lease for the factory building. B. the leather needed to make the shoes. C. the needles for the sewing machines that need to be replaced after sewing every 1,000 pairs. D. All of these are examples of fixed costs.
A decrease in stock prices alters the consumption function by:
A. decreasing the vertical intercept. B. decreasing the slope. C. increasing the vertical intercept. D. increasing the slope.
If potential output equals 8,000 and short-run equilibrium output equals 8,500, there is a(n) ________ gap and the Federal Reserve must ________ real interest rates in order to close the gap.
A. recessionary; not change B. recessionary reduce C. recessionary; raise D. expansionary; raise
An increase in a country's capital stock relative to its work force is known as
A) capital improvement. B) capital augmentation. C) capital growth. D) capital deepening.