On October 12, 1987, the Dow Jones Industrial Average plunged 508 points, wiping out more than $500 billion in a few hours. How did the Fed respond to this drastic fall in the stock market index?
A) The Fed responded precisely as it did when faced with a similar situation in 1929, that is, it deemed that no action was necessary.
B) To encourage the business community to invest in the stock market, the Fed announced that it will sell federal securities to raise the interest rate.
C) In an attempt to ward off a recession, the Fed announced that it will provide adequate liquidity, by buying federal securities.
D) The Fed provided long-term loans to those corporations that experienced significant decreases in their stock value.
Ans: C) In an attempt to ward off a recession, the Fed announced that it will provide adequate liquidity, by buying federal securities.
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The long-run Phillips curve is a vertical line because
A) there is no relationship between the natural unemployment rate and the inflation rate. B) real GDP does not depend on the unemployment rate. C) in the long run, the natural unemployment rate increases when inflation increases. D) the unemployment rate decreases when the inflation rate increases. E) the natural unemployment rate only depends on the inflation rate.
The number of job seekers in any sector of the economy ordinarily exceeds, by at least a small amount, the number of jobs available. Thus, employers
A) could increase their net revenue by lowering wages. B) could increase their net revenue by raising wages. C) do not pay close attention to marginal cost and marginal revenue in setting wages. D) face the threat of unionization. E) want employees to value their current jobs significantly more highly than they value alternative jobs.