How would you expect the Fed to respond to a negative supply shock in the economy?
What will be an ideal response?
The Fed will follow expansionary monetary policy to increase aggregate demand, which will increase inflation and reduce unemployment, if the Fed is focused on restoring real GDP in the economy. If the Fed is focused on reducing inflation, however, it will follow contractionary monetary policy, although employment and real GDP will be negatively affected.
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Suppose that a new customer opens a checking account and a saving account, placing $50,000 in each. Later, the bank makes a loan of $100,000 to a business firm. For this bank
A) assets increased by $100,000 because the loan is an asset, and liabilities increased by $100,000 because the checking and saving accounts are liabilities. B) assets increased by $100,000 because the checking and saving accounts are assets, and liabilities increased by $100,000 because the loan is a liability. C) assets increased by $50,000 because the saving account is an asset, while liabilities increased by $50,000 because the checking account is a liability. D) assets remained unchanged but liabilities increased by $100,000 because of the loan.
Diseconomies of scale is
A) a short-run phenomenon. B) the result of decreasing marginal returns. C) a long-run phenomenon. D) the result of increasing marginal returns. E) possible only when the firm's plant size is fixed.
An economic model will produce poor predictions if it includes unrealistic assumptions
a. True b. False
Fill in this table. Assume that fixed cost is $100.
