Suppose the money market is in the liquidity trap and the Fed increases the supply of money. We expect that
A) people will end up willingly holding more money.
B) the excess money holdings will flow into the loanable funds market and there will be a decrease in interest rates.
C) interest rates will increase, since the demand curve for money is upward sloping in this case.
D) eventually, via the transmission mechanism, Real GDP will increase.
A
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When inflation has been persistent, as was the case in the United States during the 1970s, low unemployment rates will likely be associated with
A) low natural rates of unemployment. B) high natural rates of unemployment. C) low but stable rates of inflation. D) high but stable rates of inflation. E) increases in the inflation rate.
Assume there is a price ceiling imposed on a good which is below the equilibrium price. Which of the following changes would reduce the size of the shortage?
a. an increase in demand b. a decrease in demand c. a decrease in supply d. a lower price ceiling