According to the Taylor rule, if inflation equals 3 percent and there is an expansionary gap equal to 3 percent of potential output, the Fed will set a real interest rate of ________ percent and a nominal interest rate of ________ percent.

Refer to Scenario 5.10. Hillary's indifference curves showing her preferences toward risk and return can be shown in a diagram. Expected return is plotted on the vertical axis and standard deviation of return on the horizontal axis

Although her indifference curves are upward sloping and bowed downward, their slope is very gradual (they are almost horizontal). These indifference curves reveal that Hillary is: A) risk neutral. B) risk averse. C) risk loving. D) irrational.

Why do people hold money (currency and checking account balances), and thereby forgo earning interest or dividends from a financial investment?

a. Some money is demanded for everyday transactions like parking fees, lunch, and buying groceries. b. Some money is demanded as a precaution against unexpected costs such as automobile repairs, speeding tickets, or temporary loss of a job. c. Some money is demanded for speculative purchases of stocks, bonds, or collectibles in case they become available at a particularly low price. d. All of the above are correct.