If it is the real rate of interest that savers and borrowers respond to, how does the Fed impact a real rate by targeting a nominal rate of interest?
What will be an ideal response?
Currently the Fed controls the federal funds rate and it is a market rate because it is determined in the market for excess reserves. It is also a nominal interest rate. The Fed can have some control over the real interest rate as long as we assume that inflation does not change quickly. The Fed can alter the nominal federal funds rate faster than inflation adjusts, so in effect, the Fed controls the real rate of interest.
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From 1992-2007, the volume of currency traded worldwide:
a. slumped due to the world recession. b. increased approximately 290%. c. fluctuated wildly due to investor expectations. d. was concentrated in trades in the developing world.
An industry with Herfindahl-Hershman Index of 10,000 would best be described as
A. oligopoly. B. perfect competition. C. monopolistic competition. D. monopoly.
An economist secures volunteers from her college campus and divides them into two groups that are ushered into different rooms. Both groups are given a test. Those in the first group who score 90 percent or more receive an Apple iPad. Upon exiting the room, those given iPads are offered the choice of receiving $150 in exchange for the iPad. Only a few take the exchange. Those in the second group who score 90 percent are offered either an Apple iPad or $150. About half the students choose $150. The professor uses this data to support a principle known as the endowment effect. The professor is engaging in:
A. natural experiments. B. the economic decision rule. C. experimental economics. D. a market coordination mechanism.
The short-run Phillips curve is downward sloping because
A) the expected inflation rate is zero in the short run. B) the economy always returns to full employment. C) reducing the unemployment rate will reduce the inflation rate in the short run. D) in the long run, the expected inflation rate equals the actual inflation rate. E) the unemployment rate can be above or below the natural unemployment rate.