Suppose the Fed conducts an open market purchase of bonds. This monetary policy action will tend to cause
A. the price of bonds to decrease, and the interest rate to increase.
B. the price of bonds to increase, and the interest rate to increase.
C. the price of bonds to decrease, and the interest rate to decrease.
D. the price of bonds to increase, and the interest rate to decrease.
Answer: D
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The substitution effect indicates that:
A) a decline in money income will cause the consumer to buy more inferior goods and fewer superior goods. B) consumer equilibrium can only be achieved when the consumer is buying substitute goods. C) when the price of a product falls, the lower price will induce the consumer to buy more of that product at the expense of other products. D) when the price of a product falls, a consumer will be able to buy more of it with a specific money income.
You took a job as a salesperson in an insurance company with the knowledge that you have 0.5 chance of making $2,000 a month or $3,000 a month. How much will you make each month?
A) definitely $2,500 B) definitely $2,000 C) definitely $3,000 D) either $2,000 or $3,000