How is the money supply related to planning investment and government deficit spending?
What will be an ideal response?
Absent a change in velocity, an increase in the money supply is necessary to give businesses or the government the means to increase their spending. Borrowing from the bank for increased investments or government deficit spending tends to bring about an increase in money supply by leading the bank to create demand deposits.
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Suppose the majority of the shares of Ford stock were sold to a Japanese firm. Assuming all else remains constant, this will
A) decrease net portfolio investment in the United States. B) increase foreign direct investment in the United States. C) increase the balance of the U.S. current account. D) create a capital outflow in the United States. E) increase the balance of the U.S. financial account.
The life-cycle theory of consumption predicts that when a person anticipates a higher income in the future, then that person will
A) consume more and save less in the current period. B) consume less and save more in the current period. C) consume less and save less in the current period. D) not change the amount of consumption or saving in the current period.