Explain how the wealth effect can affect aggregate demand
What will be an ideal response?
As price levels change, the purchasing power of money changes. If price levels decrease, people holding money find they are better off, and will spend more on additional goods and services. The increase in consumer spending increases aggregate demand. If price levels decrease, people's wealth is reduced and the total demand for goods and services decreases.
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A distinction between stocks and bonds is that
A) although the return on a bond is determined by the forces of supply and demand, the return on a stock is set by the stock exchange. B) stocks represent ownership claims to the company and bonds do not. C) bonds must be held for a fixed number of years whereas stocks can be bought and sold at any time. D) bonds can be traded many times in the bond market, while stocks are non-transferable. E) bonds cannot be sold to anyone other than the company that issued it while stocks can be resold to anyone.
Suppose the natural unemployment rate equals 6 percent and the current unemployment rate is 8 percent. We can conclude that
A) there is no structural unemployment. B) there is no frictional unemployment. C) there is no cyclical unemployment. D) full employment is not occurring.
Explain the difference between financing investment with a business loan versus with venture capital. What are the pros and cons of each?
What will be an ideal response?
Most transactions between large financial institutions in the United States are handled by
A) check. B) Fedwire. C) currency. D) ACH.