Assume the economy's consumption and saving schedules simultaneously shift downward. This must be the result of:
A. an increase in disposable income.
B. an increase in household wealth.
C. an increase in personal taxes.
D. the expectation of a recession.
C. an increase in personal taxes.
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The Fed seldom uses the reserve requirement ratio to influence the money supply. What is the reason for this?
A) It is difficult and costly for the Fed to monitor compliance. B) Frequent manipulation of reserve requirements would require bankers to constantly adjust their lending policies to changing requirements, which could be destabilizing for financial markets. C) The Fed would like to discourage banks from making loans indiscriminately and therefore sets just one standard. D) Reserves in excess of a certain amount will not be covered by the Federal Depository Insurance Corporation.
The Federal Reserve econometric model estimates that a 1 percent increase in government spending, with the money supply increased to hold the interest rate constant, will
A) increase real GDP by 3 percent in 3 years. B) increase real GDP by 3 percent in 4 years. C) increase real GDP by 1 percent 2 years. D) have no effect on real GDP after 3 years.