Suppose that the economy is producing below potential GDP and the Fed implements the correct change in monetary policy, but not until after the economy has passed the trough of the recession. Then
A) the Fed's contractionary policy may result in too large of a decrease in GDP.
B) the Fed's contractionary policy may result in too small of a decrease in GDP.
C) the Fed's expansionary policy may result in too small of a decrease in GDP.
D) the Fed's expansionary policy may result in too large of an increase in GDP.
Answer: D
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When the Fed increases the money supply, it leads to lower interest rates
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The price elasticity of demand for gasoline is 0.27 and for wine is 2.9 . If the government had the choice of taxing only one, which of the following should it choose?
a. tax gasoline b. tax wine c. tax neither, but raise the price elasticity of demand for each d. tax neither, but lower the price elasticity of demand for each e. tax neither, but raise the price elasticity of demand for gasoline and lower it for wine