Suppose there are two policy options facing a vote in the Senate. In the first, government spending will increase $100 billion, while the second option is to cut taxes by $100 billion. A Keynesian economist would argue for
A. the spending option because it has a bigger impact on total spending. The spending directly raises total spending plus it works through the multiplier, while the tax cut only works through the multiplier.
B. the spending option because it won't affect the deficit the way the tax cut would.
C. the tax option because it also affects the incentives workers face. Long-run aggregate supply will increase with the tax cut, but not with the spending increase.
D. the tax option because it is easier to pass. The effects on total spending would be identical.
Answer: A
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When the Fed purchases government securities,
A) required reserves in the banking system decrease, leading to fewer loans being made. B) required reserves in the banking system increase, leading to more loans being made. C) the monetary base does not change. D) excess reserves in the banking system decrease, leading to fewer loans being made. E) excess reserves in the banking system increase, leading to more loans being made.
Depository institution create liquidity when they
A) buy assets that are liquid. B) borrow short and lend long. C) have liabilities that are illiquid. D) borrow long and lend short.
The monetary policy strategy that directly ties down the price of internationally traded goods is
A) exchange-rate targeting. B) monetary targeting. C) inflation targeting. D) the implicit nominal anchor.
Explain the logic behind the First Theorem of Welfare Economics
What will be an ideal response?