Figure 32-3
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Figure 32-3 shows the impact of deficit spending and the corresponding economic expansion on the demand curve for money. If the Federal Reserve does not want interest rates to rise, it will
A. shift the money supply curve to the right by monetizing the deficit.
B. shift the money supply curve to the left by open-market sales of government securities.
C. maintain the current targets for both M1 and M2 money stocks.
D. engage in contractionary monetary policy, such as increases in the discount rate.
Answer: A
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If the nominal money supply grows 6%, real income rises 2%, and the inflation rate is 5%, then the income elasticity of money demand is
A) 0.5. B) 0.75. C) 1.0. D) 1.5.
Consider a wine maker who has put her wine in bottles. The question is whether to store the wine for a marginal cost of $1 per year or to sell the wine today at a price of $10
If the interest rate is 6%, how much must the price of the wine increase in the next year to justify storing it? A) $1.66 B) $1.27 C) $0.72 D) $0.45
Demand curves slope downward to the right
a. True b. False Indicate whether the statement is true or false
The spillover effects of actions that affect the well-being of nonconsenting third parties are called
a. side components. b. externalities. c. free riders. d. internalizations.