Which of the following will be most likely to dampen the expansionary effects of an increase in government spending financed by borrowing?
a. The budget deficit will cause business decision makers to become more optimistic.
b. The increase in demand for loanable funds as the result of borrowing will cause interest rates to rise and private investment to fall.
c. The increase in government spending will cause the money supply to expand, thereby causing an inflationary boom.
d. The additional borrowing will cause the central bank to buy more bonds, which will reduce aggregate demand.
B
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Financial intermediaries reduce risk by
A) investing in a large number of projects with independent returns. B) gaining expertise in evaluating and monitoring investments. C) investing in a small number of projects with independent returns. D) limiting the diversity of their investment portfolios.
If business cycles are caused by changes in aggregate demand, you would expect to see
a. prices and unemployment moving in the same direction. b. price and unemployment moving in opposite directions. c. prices not moving with unemployment. d. unemployment is not included in the Keynesian model.