Among the components of the real-world multiplier, the Fed most directly control
ID: 1226128 • Letter: A
Question
Among the components of the real-world multiplier, the Fed most directly controls _______________. The component of the multiplier that affects it the most is ________________.
k; rr
er; k
rr; er
rr; k
We will work with this scenario for the next two questions:
Consider an economy in which a charming, famous self-help guru makes very popular the idea that savings are pointless - that we should spend our money now, because the future is uncertain. Many Americans listen to and agree with this self-help guru, changing their lives in accordance with his teachings. In the short run, the result will be ____________ in the price level and ________________ in output.
none of the listed options
a decrease; a decrease
a decrease; no change
a decrease; an increase
an increase; an increase
Consider once again an economy in which a charming, famous self-help guru makes very popular the idea that savings are pointless - that we should spend our money now, because the future is uncertain. Many Americans listen to and agree with this self-help guru, changing their lives in accordance with his teachings. In the short run, this would cause ___________; as we move into the long run, this would cause ______________.
AD to shift rightward; SRAS to shift rightward
AD to shift leftward; SRAS to shift leftward
AD to shift rightward; SRAS to shift leftward
AD to shift leftward; SRAS to shift rightward
Tight monetary policy
(Note: ALL parts of the answer option must be correct for it to be the right answer.)
aims to discourage spending and slow growth in prices
can be done by raising interest rates or raising taxes
can be done by raising rr or by buying bonds from banks
is intended to create jobs and cause disinflation
When the Fed creates publications explaining its goals for the near term (and, often, beyond), it does so in terms of
the policy target called the federal funds rate
the policy target called open market operations
the tool of policy called the federal funds rate
the tool of policy called open market operations
Consider a situation in which inflation is caused by a decrease in aggregate supply in the short run. If the Fed uses tight money policy to fight this trend,
it will further increase prices and also decrease output
it will decrease prices and increase output
it will further increase prices but increase output
it will decrease prices but lower output
Two ways to do easy (expansionary) policy are
raising the rate on discount loans and buying bonds from banks
selling bonds to banks and reducing rr
lowering taxes and buying bonds from banks
reducing rr and raising taxes
k; rr
er; k
Explanation / Answer
1)Fed can directly control mostly required reserve and as it cant directly control inflation, it controls RR and controls inflation
2) short term effect of investing instead of saving is rightward shift of AD curve which will increase both output and price
3) Ad curve will shift outward ie rightside and SRAS will shift leftward
4)tight monetary policy is a restrictive monetary policy which aims to reduce economic growth through different steps and they are aims to discourage spending and slow growth in prices, can be done by raising interest rates or raising taxes.
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