If the Federal Reserve is interested in conducting contractionary policy, what types of policies should it consider?
What will be an ideal response?
Examples of contractionary monetary policy include open market sales, increasing the reserve requirements for banks and increasing the discount rate. In all three instances, the money supply decreases.
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If stock prices follow a random walk,
a. speculation in the stock market destabilizes prices. b. a stock's past performance is not a good indicator of its future performance. c. rumors, news, and other "signals" have no effect on stock prices. d. the stock market does not participate in channeling resources toward firms with high stock prices.
Market failure will most likely arise from poor information when the product is
a. a repeat-purchase item. b. easily evaluated on inspection. c. often purchased from the same seller. d. unlikely to be purchased from the same seller in the future.
Which situation is consistent with the law of diminishing marginal utility?
A. The more pizza Joe eats, the more he enjoys an additional slice B. The more pizza Joe eats, the less he enjoys an additional slice C. Joe's marginal utility from eating pizza becomes positive after eating three slices D. Joe's marginal utility from eating pizza reaches a maximum when total utility is zero
A government is considering levying an alcohol tax to raise revenue to finance health care benefits. People for the tax argue that alcohol demand is price inelastic. Which of the following statements is true?
A. No tax revenue can be raised in this way because alcohol sellers will just lower their price by the amount of the tax, and therefore the consumer price of alcohol will not change. B. This is a very good way to raise revenue both in the short term and in the long term because there are no close substitutes for alcohol. C. The alcohol tax may not raise as much revenue as anticipated in the years to come because alcohol demand is more elastic the longer the period of time consumers have to adjust. D. This tax will not raise much revenue either in the short term or the long term because demand is price inelastic.