"If the currency drain ratio increases, the monetary base decreases." Explain whether the previous statement is correct or incorrect
What will be an ideal response?
The statement is false. If the currency drain ratio increases, the money multiplier (and the quantity of money) decreases but the monetary base itself is unaffected.
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Those who accept both the rational expectations hypothesis and the assumption of flexibility of wages and price would likely argue that
A) if policy makers are willing to accept a high inflation rate, they can reduce unemployment to a point below the natural rate. B) policy makers can eliminate fluctuations in the level of business activity with careful planning of a widely publicized monetary policy. C) saving and investment do not contribute to economic growth. D) active policy making does not contribute to economic stability.
Downward wage rigidity is likely to:
A) decrease unemployment. B) decrease wage rates. C) increase wage rates. D) increase unemployment.