Your roommate is having trouble grasping how monetary policy works. Which of the following explanations could you use to correctly describe the mechanism by which the Fed can affect the economy through monetary policy? Increasing the money supply
A) lowers the interest rate, raises the value of the dollar, lowers the prices of exports, and raises net exports.
B) raises the interest rate and consumers decrease spending on durable goods.
C) causes people to spend more because they know prices will rise in the future.
D) lowers the interest rate, and firms increase investment spending.
D
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The ________ a good or service is, the ________ its price is likely to be
A) more scarce; higher B) more scarce; lower C) more available; higher D) more available; more unstable
Refer to Figure 3-6. The figure above represents the market for coffee grinders. Assume that the price of coffee grinders is $50. At this price,
A) there is a surplus equal to 90 coffee grinders that will be eliminated when the price falls to $25. B) the supply exceeds the demand by 90. Some producers will have an incentive to offer to sell coffee grinders at a lower price. C) there is a surplus equal to 90 coffee grinders and the price of coffee grinders will fall until demand is equal to supply. D) the quantity supplied exceeds the quantity supplied by 100. The price will eventually fall to $25 where quantity demanded will equal quantity supplied.