A departure from the New Zealand model, in which the central bank implements an inflation target set by the government, the ECB operates according to the German model, in which the central bank:
A) has ceded power to the administration.
B) has authority to set and implement the inflation target.
C) functions only in a technical sense.
D) is replaced by a currency board.
Ans: B) has authority to set and implement the inflation target.
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A fiscal policy is considered sustainable when the debt-to-GDP ratio is ________, and it is considered unsustainable when the debt-to-GDP ratio is ________
A) constant; increasing or decreasing B) constant or decreasing; increasing C) decreasing; constant or increasing D) constant or increasing; decreasing
Refer to the graphs, in which the numbers in parentheses near the AD1, AD2, and AD3 labels indicate the level of investment spending associated with each curve. All figures are in billions. The economy is at point Y on the investment demand curve. Given these conditions, what policy should the Fed pursue to achieve a noninflationary full-employment level of real GDP?
A. Increase aggregate demand from AD3 to AD2
B. Decrease the money supply from $225 to $150 billion
C. Increase interest rates from 4 to 8 percent
D. Make no change in monetary policy