In 2001, the FOMC lowered the target federal funds rate eleven times, cutting the rate from 6-1/2 percent to 1-3/4 percent. Why didn't the Fed just cut the rate by larger amounts early on?
What will be an ideal response?
There are at least a couple of parts to this answer. One part is that the FOMC does not know how the economy will react to each cut. If the cuts are too aggressive and the economy picks up dramatically, the FOMC could be sowing the seeds for high rates of inflation in the long run. The other is that changes in interest rates by the FOMC need time to work through the links from the operating instrument to the ultimate objective, and this takes time. The FOMC likely wanted to see how the economy would respond to small cuts before taking further action.
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Which one of the following does NOT appear to contribute to economic growth?
A) knowledge B) a system of well-defined property rights C) protectionism D) innovation
Which of the following is an example of a leakage from the circular flow of income and expenditure?
a. Investment b. Imports c. Government purchases d. Exports e. Transfer payments
Comparing the monopoly firm with a perfectly competitive firm reveals that:
a. the competitive firm sells less quantity. b. the monopoly firm charges a lower price. c. the competitive firm's price is above MC. d. None of these is revealed when the two firm are compared.
When money serves as a standard for comparing values of different things, it is functioning as a
A. hedge against inflation. B. standard of deferred payment. C. unit of accounting. D. store of value.