Compare and contrast the different ways the Federal Reserve would handle a recession and inflation.
What will be an ideal response?
During a recession, the sale of goods and services drops off as many people cut down on their spending. To stimulate the economy, the Federal Reserve increases the money supply. As a result, interest rates decrease and people are more likely to borrow money to purchase homes, automobiles, and other goods. On the other hand, during inflation, the demand for goods and services increases the price level. To curb inflation, the Federal Reserve would reduce the money supply. Because of this, interest rates would go up and fewer people would borrow money to buy products. To convince more people to buy, companies would reduce prices, thus reducing or stopping inflation.
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Relative to the yen, from 2012-2014 the U.S. dollar
A) depreciated due to an anticipated decrease in the interest rate differential and expectations of a lower future exchange rate. B) appreciated due to an anticipated decrease in the interest rate differential and expectations of a lower future exchange rate. C) depreciated due to an anticipated increase in the interest rate differential and expectations of a higher future exchange rate. D) appreciated due to an anticipated increase in the interest rate differential and expectations of a higher future exchange rate.
If the inverse demand curve a monopoly faces is p = 100 - 2Q, MC is constant at 16, and the government imposes an $8 per unit specific tax on the monopoly, the deadweight loss solely due to the tax is
A) $88. B) $152. C) $361. D) $441.