If the Federal Reserve announces that its target for the federal funds rate is rising from 4 percent to 4.25 percent, how do you expect workers and firms to react?
A) If the Fed's announcement is not credible, workers and firms will not expect inflation to fall so they will reduce their consumption and investment spending, which will increase aggregate demand and reduce inflation.
B) As long as the Fed's announcement is credible, workers and firms will reduce their consumption and investment spending, which will reduce aggregate demand and reduce inflation.
C) As long as the Fed's announcement is credible, workers and firms will increase their consumption and investment spending, which will increase aggregate demand and inflation.
D) Workers and firms will incorporate the increase in interest rates into their expectations of inflation, and they will expect inflation to rise as a result of Fed's policy announcement.
Ques. 2When housing prices fell as they did beginning in 2006 following the housing market bubble, most banks and other lenders ________ the requirement for borrowers, making it ________ for potential home buyers to obtain mortgages.
A) tightened; harder B) eased; easier C) eased; harder D) tightened; easier
Ques. 3What are the key differences between how we illustrate a contractionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?
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What will be an ideal response?
Ques. 4If the consumption function is defined as C = 7,250 + 0.8Y, what is the value of the multiplier?
A) 0.2 B) 0.8 C) 1.25 D) 5
Ques. 5Proponents of the ________ model argue that the short-run supply curve is vertical.
A) the monetarist model B) the new classical model
C) the new Keynesian model D) the real business cycle model
Ques. 6If the price level in the United States is 110, the price level is 120 in Mexico, and the nominal exchange rate is 140 pesos per dollar, what is the real exchange rate from the U.S. perspective?
A) 94 B) 115 C) 128 D) 153
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