According to classical economists, if there is a 12% increase in the money supply, what will happen to the price level?
a) The price level will increase by 6%.
b) The price level will decrease by 6%.
c) The price level will increase by 12%.
d) The price level will decrease by 12%.
Ans: c) The price level will increase by 12%.
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If the Fed buys government securities from the non-bank public, then
A) reserves at banks decrease. B) deposits at banks increase and banks' reserves increase. C) deposits at banks increase and banks' reserves decrease. D) loans at banks decrease. E) deposits at banks decrease and banks' reserves increase.
Refer to Figure 5-1. Suppose the current market equilibrium output of Q1 is not the economically efficient output because of an externality. The economically efficient output is Q2. In that case, the diagram shows
A) the effect of an external cost imposed on a producer. B) the effect of a positive externality in the production of a good. C) the effect of a negative externality in the production of a good. D) the effect of an external benefit such as a subsidy granted to consumers of a good.