Refer to the above figure. Suppose that the economy initially is operating along AD1
If the government seeks to close the recessionary gap by raising government spending without any change in taxation, which moves the aggregate demand curve from AD1 to AD2, then to AD3. Which of the following scenarios is TRUE?
A) Interest rates fall and investment rises.
B) Both interest rates and investment fall.
C) Both interest rates and investment rise.
D) Interest rates rise and investment falls.
Answer: D) Interest rates rise and investment falls.
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Refer to Table 3-2. The table above shows the demand schedules for caviar of two individuals (Ari and Sonia) and the rest of the market. At a price of $55, the quantity demanded in the market would be
A) 42 oz. B) 136 oz. C) 178 oz. D) 233 oz.
Quarterly data for the years 1988-93 for the nominal federal funds interest rate and the output ratio show that the Fed
A) reacted to a high output ratio by raising the interest rate. B) reacted to a high output ratio by lowering the interest rate. C) reacted to low output ratios but not to high output ratios. D) did not react to movements in the output ratio.