If monetary policymakers do not want the current inflation rate to increase, yet they observe increasing aggregate demand from higher government purchases, will they have to accept a higher inflation target? Explain.
What will be an ideal response?
Not necessarily. If the increase in aggregate demand puts upward pressure on inflation, the monetary policymakers could compensate by shifting their monetary policy reaction function to the left, increasing the real interest rate at every rate of inflation. In this case the higher real interest rate should cause the dynamic aggregate demand curve to shift left restoring long-run equilibrium at the target rate of inflation.
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In tit-for-tat, if your partner ________ in your first interaction, then you will ________ in your next interaction.
A. defects; defect B. defects; cooperate C. defects; refuse to play D. cooperates; defect
As a result of the financial deregulation that allowed banks to issue new types of interest-bearing checking accounts
A) people are less willing to hold M1 at a given interest rate on alternative assets. B) the demand for money M1 curve became more stable. C) the demand for money M1 curve became vertical. D) the demand for money M1 curve will shift to the right.
The acquisition of more than 10 percent of the outstanding shares in a company in another country is
A) foreign direct investment. B) foreign direct acquisition. C) portfolio investment. D) portfolio acquisition.
Suppose demand increases and supply decreases. Which of the following will happen?
a. The change in equilibrium price and quantity cannot be determined. b. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will increase. c. Equilibrium price will rise, fall, or stay the same while equilibrium quantity will decrease. d. Equilibrium quantity will rise, fall, or stay the same while equilibrium price will decrease. e. Equilibrium quantity will rise, fall, or stay the same and equilibrium price will increase.