Suppose that during a period of inflation, the Fed reduced its holdings of U.S. securities from $600 billion to $580 billion. This indicates that the Fed was
a. seeking to reduce the money supply to decrease inflation.
b. trying to force Congress to decrease taxes.
c. expanding the money supply and stimulating employment.
d. expanding the money supply, even though the existing inflation suggested a restrictive policy would be more appropriate.
A
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In the long run, most economists agree that a permanent increase in government spending leads to
A) a decrease in private spending by less than the amount that government spending increased. B) a decrease in private spending by the same amount that government spending increased. C) no decrease in private spending. D) a decrease in private spending by more than the amount that government spending increased.
Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6. What does this mean?
A) A 1 percent decrease in the price of grapefruit juice leads to a 6 percent increase in orange juice consumption. B) A 6 percent increase in the price of grapefruit juice leads to a 1 percent increase in orange juice consumption. C) The demand for orange juice is 6 times greater than the demand for grapefruit juice. D) If the price of grapefruit juice rises by $1, 6 more cartons of orange juice will be purchased.