Suppose at the prevailing interest rate of 4 percent the money supply and the quantity of money demanded are both $2 trillion. At a 5 percent interest rate, the quantity of money demanded is $1.5 trillion, while at a 3 percent interest rate it is $2.5 trillion. If the Fed conducts an open-market purchase of $50 billion, and if the money multiplier is 10, then at what interest rate will the money
supply equal the quantity of money demanded?
a. An interest rate of 5 percent and a quantity of $1.5 trillion.
b. An interest rate of 4 percent and a quantity of $2 trillion.
c. An interest rate of 3 percent and a quantity of $2.5 trillion.
d. An interest rate of 4 percent and a quantity of $2.5 trillion.
c
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Some economists believe that financing deficit spending by increasing taxes will lead to a lower level of national consumption and a higher level of national savings than deficit spending. The reason is
A) that people do not realize that taxes have increased also. B) the interest rate on the debt will increase. C) people will forgo private consumption now as society substitutes government goods for private goods. D) people believe that they can consume the government provided goods and have future generations pay the bill.
When economists state that money is neutral in the long run, they mean that in the long run,
A) fluctuations in the money supply are equally likely to lead to recessions as to expansions. B) changes in the money supply have the same impact on the rich as they do on the poor. C) the level of output is independent of the nominal money supply. D) the price level is independent of the nominal money supply.
According to marginal analysis, you should spend more time studying economics if the extra benefit from an additional hour of study:
a. is positive. b. outweighs the extra cost. c. exceeds the benefits of the previous hour of study. d. will raise your exam score.
Refer to the information provided in Figure 6.2 below to answer the question(s) that follow.
Figure 6.2Refer to Figure 6.2. Mr. Lingle's budget constraint is AC. Point C is
A. an available option and Mr. Lingle exactly spends all of his income. B. not in Mr. Lingle's opportunity set but is on his budget constraint. C. an available option and Mr. Lingle does not spend all of his income. D. not available because it represents a combination of gardenburgers and beer that Mr. Lingle cannot purchase with his current income.