The inflation rate in Genovia has been rising constantly. What can the central bank of the country do to control inflation?
What will be an ideal response?
The central bank of Genovia should reduce the quantity of bank reserves deposited at the central bank by selling government bonds to private banks. This will lead to an increase in the federal funds rate which will in turn lead to an increase in the long-term interest rate. As a result, both consumption and investment will fall. A fall in consumption and investment leads to a decrease in aggregate demand. As a result, the aggregate price level will fall.
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The Federal Reserve can tightly control
a. cash in the hands of the public b. cash in the hands of the public and demand deposits c. demand deposits d. funds in savings accounts and checking accounts e. borrowing by the government
The figure below shows the production-possibility curves of Canada (AB) and the rest of the world (CD). The international price ratio faced by the countries is represented by the line P2. I1 and I2 are community indifference curves for Canada and the rest of the world. After engaging in free trade, Canada consumes ________ bales of cotton and ________ bushels of wheat.
A. twelve; eleven B. twenty; eleven C. sixteen; six D. three; twenty