When the Fed conducts expansionary monetary policy, lower short-term interest rates will tend to stimulate the economy. How will the change in the velocity of money affect this result?
a. Velocity will decline, enhancing the stimulus effect.
b. Velocity will increase, somewhat dampening the stimulus effect.
c. Velocity will increase, enhancing the stimulus effect.
d. Velocity will decline, somewhat dampening the stimulus effect.
D
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The "home" equilibrium will provide the highest level of consumer satisfaction from domestic resources whenever:
a. the marginal products of labor are equal. b. capital and technology are not factors in the decision of what to produce. c. perfect competition in product and labor markets exists. d. Adam Smith's "invisible hand" is not an interfering factor.
If the desired reserve ratio is 10 percent and there is no currency drain, then a $100 increase in the monetary base leads the banking system to increase the quantity of money by
A) $1,000. B) $400. C) $900. D) $110. E) $1,100.