If we consider the relationship between the opportunity cost of holding money and velocity that existed in the 1980s, if the Fed followed the same policymaking in the 1990s and 2000s, would they have achieved the desired results? Explain.
What will be an ideal response?
Likely not. In the 1990s and 2000s the sensitivity of velocity to interest rates (opportunity cost of holding money) was far greater than it was in the 1980s. In fact, the sensitivity of money demand to changes in the interest rate rose by a factor greater than six. If the Fed had followed the same policy in the 1990s and 2000s they would not have the desired effect. This is a result of the variability in the velocity of money and how it can make monetary policymaking difficult.
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The above figure shows the marginal private benefit and marginal social cost of a college education. If society's external benefits from college graduates is $10,000 each, then the private market outcome is inefficient because
A) no students will go to college. B) society places less value on educating the next student than it will cost society to educate that student. C) society places greater value on educating the next student than it will cost society to educate that student. D) the marginal cost will shift upward.
Intense market competition is ________ for consumers, since it_______
a. Bad; erodes producer surplus b. Bad, increases variety in the market c. Good, increases the price level in the market d. Good; decreases the price level in the market