In the above figure, is the Fed likely to be afraid that inflation will occur or that a recession will occur? Discuss the appropriate monetary policy that should be made to restore the economy to potential GDP
What will be an ideal response?
The Fed will fear inflation. The economy is in a short-run equilibrium with real GDP of $13.5 trillion, which exceeds potential GDP of $13.0 trillion. If the Fed does nothing, the aggregate supply curve will begin to shift leftward, raising the price level and creating inflation as it moves the economy back to potential GDP. In order to limit the inflation, the Fed needs to raise the federal funds rate, thereby decreasing aggregate demand.
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Refer to Figure 2.1. If you choose to produce only agricultural products, what is the maximum quantity you can produce per year?
A) 200 tons B) 400 tons C) 600 tons D) > 600 tons
When a business advertises that its product has unique features that make it superior to other similar products, it is engaging in
A. Price competition. B. Product differentiation. C. Predatory pricing. D. Contestable market advertising.
A basic distinction between the long run and the short run is that
A) if a firm produces no output in the long run, it still incurs a cost. B) the opportunity costs of production are lower in the short run than in the long run. C) in the long run, some inputs are fixed, while in the short run, all inputs are variable. D) in the short run, complete adjustment of all inputs is impossible, while in the long run all inputs can be adjusted.
The leadership of the Federal Reserve System is provided by
A. the Federal Open Market Committee. B. the Board of Governors. C. the Federal Advisory Committee. D. the directors of the twelve Federal Reserve banks.