Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in long-run macroeconomic equilibrium
For Year 2, graph aggregate demand, long-run aggregate supply, and short-run aggregate supply such that the condition of the economy will induce the Federal Reserve to conduct a contractionary monetary policy. Briefly explain the condition of the economy and what the Federal Reserve is attempting to do.
The Federal Reserve conducts a contractionary monetary policy to reduce inflation. In the graph below, the economy would move from point A in Year 1 to point B in Year 2 without any contractionary monetary policy. At point B, inflation is higher than it would be if real GDP equaled potential real GDP. The Fed would decrease the money supply and raise interest rates to slow down aggregate demand, trying to keep the economy at potential.
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The ability of a commercial bank to increase the money supply is limited by the
A) availability of eligible borrowers and the bank's reserves in relation to legal reserve requirements. B) demand of the public for liquidity. C) eligibility of the bank for currency drafts and its ratio of M2 to M1. D) willingness of customers to withdraw currency for circulation.
Which of the following would be classified as a variable cost for the local Texaco station?
A) interest payments to a local bank for a 5-year loan B) the total wages paid to the workers who are all paid $16.00 per hour, no matter how many hours they work each week C) the premiums paid for liability insurance, which are constant throughout the life of the contract D) the opportunity cost of money used to finance the installation of some new pumps