Suppose the Fed implements a monetary expansion that is at least partially unexpected. Explain what effect this will have on stock prices
What will be an ideal response?
This will cause the interest rate to fall and output to rise. The lower interest rate will increase the present value of future dividends. The increase in output will cause an increase in expected dividends because profits are now expected to be higher. Both of these effects cause stock prices to rise.
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"We basically let the wife and children not eat for a week so we can do this," joked Neil Plotkin, who was attending his first Penn State game. If Neil's marginal rate of substitution between weeks of food and his first Penn State game is 1, what do you predict the marginal rate of substitution between food and subsequent Penn State games is for Neil? A) less than one B) greater than one C) equal to one D) cannot determine without knowing Neil's income
What are the three key features of the financial system that result from the existence of transactions and information costs?
What will be an ideal response?
Which of the following propositions would a proponent of supply-side economics be most likely to stress?
a. Higher marginal tax rates will lead to a reduction in the budget deficit and lower interest rates, because they expand government revenues. b. Higher marginal tax rates promote economic inefficiency and thereby retard aggregate output, because they encourage investors to undertake low-productivity projects with substantial tax-shelter benefits. c. Income redistribution payments will exert little impact on real aggregate supply, since they do not consume resources directly. d. A tax reduction will increase the disposable income of households. Thus the primary impact of a tax reduction on aggregate supply will stem from the influence of the tax change on the size of the budget deficit or surplus.
By law, employers in the United States may not ask prospective female employees whether they plan to have babies. The existence of this law seems most likely to
a. increase the probability that firms will practice economic discrimination against women. b. decrease the probability that firms will practice economic discrimination against women. c. increase the probability that firms will practice statistical discrimination against women. d. decrease the probability that firms will practice statistical discrimination against women.