How does a change in the quantity of money change the interest rate in the short run?
What will be an ideal response?
In the short run an increase in the quantity of money lowers the interest rate and a decrease in the quantity of money raises the interest rate. Suppose the Federal Reserve increases the quantity of money. At the initial interest rate people hold more money than the quantity they demand. To restore the amount of money they hold to equality with the quantity demanded, people use the surplus in the loanable funds market to buy bonds. The price of a bond rises which means that the interest rate on the bond falls. When the Federal Reserve decreases the quantity of money, the reverse occurs: At the initial interest rate people have less money than the quantity they demand so they sell bonds in the loanable funds market to acquire more money. Selling bonds lowers their price which raises the interest rate.
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Explain how an import quota might be more inefficient than an import tariff that has the same impact on prices.
What will be an ideal response?
The situation in which expansionary fiscal policy does not lead to a rise in aggregate output is referred to as
A) fiscal neutrality. B) a recession. C) complete crowding out. D) inflation.
On necessities, more of the incidence of tax is
A. borne by the producer. B. borne by the consumer. C. shared equally between the producer and the consumer. D. None of these are correct.
Gordon is a person who sells narcotics "on the street." This type of illegal activity:
A. Would be considered double counting in calculating GDP B. Is estimated and included in GDP figures C. Is excluded from GDP figures D. Causes GDP to be overstated