You have the assignment of making a recommendation to the Chairman of the Fed during a period of persistent, high inflation. What could you do to restore stable prices? What would you recommend instead if the problem was persistent high unemployment?
In order to restore price stability (i.e., lower the rate of inflation) you could (1) sell government securities, (2) raise reserve requirements on bank deposits, (3) raise the discount rate, and/or (4) increase the interest rate the Fed pays on bank reserves.. You could also try to use moral suasion and urge banks to be more selective in making loans. This is all contractionary monetary policy. If the problem was persistent high unemployment, you would want to use expansionsary policy, which would reverse your policy recommendations--(1) buy government securities, (2) lower reserve requirements on bank deposits, (3) lower the discount rate, and/or (4) decrease the interest rate the Fed pays on bank reserves..
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As of the end of 1994 the country in our survey with the smallest stock market in dollar terms was
A) the United States. B) the United Kingdom. C) Japan. D) Germany.
An incumbent's threat to use limit pricing if a firm enters the market
A) is credible if the firms have identical costs and market demand supports both firms. B) is credible if the firms have different costs and market demand won't support both firms. C) is not credible if the firms have different costs and market demand won't support both firms. D) is cheap talk, because the other firm will enter and the incumbent will still be able to charge monopoly pricing.