Prior to the mortgage debt crisis, the most frequently employed restrictive monetary policy tool was
a. raising the reserve ratio.
b. selling bonds in the open market.
c. raising the discount rate.
d. raising the prime interest rate.
Answer: b. selling bonds in the open market.
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Suppose a perfectly competitive market is in long-run equilibrium with a price of $12. Then there is a permanent increase in demand
As a result, in the short run the market price ________ and in the long run the number of firms ________ and the price is ________ the price was in the short run. A) rises; does not change; is equal to B) rises; increases; higher than C) rises; does not change; lower than D) falls; decreases; is equal to E) rises; increases; lower than
Securitization:
A. is a promise by the bond issuer to repay the loan, at a specified maturity date, and to pay periodic interest at a specific percentage rate. B. is an agreement in which a lender gives money to a borrower in exchange for a promise to repay the amount loaned plus an agreed-upon amount of interest. C. turns many loans into a risk-free secure asset. D. turns many loans into a single larger asset.
A voluntary restraint agreement:
A. does not, unlike a tariff, affect the price of imports. B. is prohibited under the GATT treaty and has become less common recently. C. does not, unlike a quota, affect the quantity of imports. D. raises the price of imports in the same way as a quota.
Suppose output is $440 billion, government purchases are $40 billion, desired consumption is $320 billion, and net exports are $35 billion. Absorption is equal to
A. $435 billion. B. $420 billion. C. $405 billion. D. $440 billion.