When the Fed buys government securities in the open market, the money supply ________ because ________
A) decreases; banks lose liquidity, they make fewer loans and checking account deposits decrease
B) increases; banks gain liquidity, they make more loans and checking account deposits increase
C) increases; banks lose liquidity, they make more loans and checking account deposits increase
D) decreases; banks gain liquidity, they make fewer loans and checking account deposits decrease
E) none of the above
B
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Refer to Figure 14.3. Suppose the economy is initially at long-run equilibrium and the economy experiences a demand shock such as a stock market crash. The economy then reaches a new, short-run equilibrium point
Assuming expectations are adaptive, this will allow the central bank to decrease the real interest rate, moving the economy to a another new equilibrium point. The stock market crash is temporary, so as the economy works its way back to long-run equilibrium, real GDP will increase. As the expected rate of inflation changes, the economy will move from A) point A to point C. B) point D to point C. C) point A to point D. D) point B to point C.
Draw a demand and supply curve for a competitive product, making sure to clearly label the axis. Give a brief explanation for why the resulting equilibrium is economically efficient
What will be an ideal response?