If the required reserve ratio is RR, the simple deposit multiplier is defined as
A) .
B) .
C) × change in bank reserves.
D) × change in bank reserves.
Answer: B
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When there is an expansionary gap, inflation will ________, in response to which the Federal Reserve will ________ real interest rates, and output will ________.
A. decline; lower; expand B. increase; raise; decline C. decline; lower; decline D. decline; raise; decline
Assume that Brenda has positive wealth. As the interest rate decreased, Brenda reduced her current consumption. For Brenda
A. the substitution effect of an interest rate decrease outweighs the income effect. B. the substitution effect of an interest rate increase must be zero. C. the income effect of an interest rate decrease outweighs the substitution effect. D. the income effect of an interest rate decrease must equal the substitution effect.
The correlation between an asset's real rate of return and its risk (as measured by its standard deviation) is usually
A) positive. B) strictly linear. C) flat. D) negative. E) chaotic.
An advantage of automatic stabilizers is that this type of fiscal policy is not subject to:
a. imprecise knowledge of full-employment real GDP. b. special interest groups. c. lag time problems. d. All of these are true.