In the simple deposit expansion model, a decline in checkable deposits of $500 when the required reserve ratio is equal to 20 percent implies that the Fed
A) sold $250 in government bonds.
B) sold $100 in government bonds.
C) sold $50 in government bonds.
D) purchased $100 in government bonds.
B
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A decrease in the money supply:
a. lowers the interest rate, causing a decrease in investment and a decrease in GDP. b. lowers the interest rate, causing a decrease in investment and an increase in GDP. c. raises the interest rate, causing an increase in investment and a decrease in GDP. d. raises the interest rate, causing an increase in investment and an increase in GDP. e. raises the interest rate, causing a decrease in investment and a decrease in GDP.
Suppose the economy is at full employment and firms become more pessimistic about the future profitability of new investment. Which of the following will happen in the short run?
A) Output will rise. B) Prices will rise. C) Unemployment will rise. D) The aggregate demand curve will shift to the right.