Explain the Fed's countercyclical operations
In the recovery and prosperity phases of the business cycle, the Fed can control money supply growth by
raising the legal reserve requirement or the discount rate, or by selling securities. These actions would
make it more difficult for banks to make loans, easing the inflationary pressures on the economy. In the
downturn and recession phases of the cycle, it can increase the money supply by lowering the legal reserve
requirement or the discount rate, or by buying securities. These actions would make it easier for banks to
make loans, perhaps increasing spending and stimulating economic growth.
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In the above figure, the relationship between x and y is
A) positive, with slope decreasing as x increases. B) negative, with slope decreasing as x increases. C) negative, with slope increasing as x increases. D) positive, with slope increasing as x increases.
Chapter 15 suggests that the Community Reinvestment Act (CRA) provides an example of
A) bad intentions and bad unintended consequences. B) good intentions and bad unintended consequences. C) bad intentions and good unintended consequences. D) good intentions and good unintended consequences.
The price elasticity of demand equals the slope of the demand curve
Indicate whether the statement is true or false
The crowding out effect of expansionary fiscal policy when the money supply is not increased is confirmed by
A) the Keynesian econometric models only. B) the Monetarist models only. C) both the monetarist and Keynesian econometric models. D) neither the Monetarist nor the Keynesian econometric models.