The financial market shock which occurred during the recession of 2007-2009 increased the default-risk premium, causing the
A) IS curve to shift to the right.
B) IS curve to shift to the left.
C) MP curve to shift up.
D) MP curve to shift down.
Question 2A small business owner has a line of credit from a bank with a nominal interest rate of seven percent.
For several years, the price level has been rising at an annual rate of two percent, but the owner has just read in the newspaper that economists expect next year's inflation rate to be four percent or more. Assume that this owner may either continue the line of credit at seven percent, or renegotiate to alter both the size of the credit and the interest rate. What reason might there be for the owner to keep the credit terms as is? What argument might justify changing the credit agreement?
Question 3If the Fed purchases securities worth 10 million from a commercial bank, the banking system's balance sheet will show
A) an increase in securities held of 10 million and an increase in bank reserves of 10 million.
B) an increase in securities held of 10 million and a decrease in bank reserves of 10 million.
C) a decrease in securities held of 10 million and an increase in bank reserves of 10 million.
D) a decrease in securities held of 10 million and a decrease in bank reserves of 10 million.
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