Suppose that businesses and consumers become much more optimistic about the future of the economy. To stabilize output, the Federal Reserve could
a. buy bonds to raise interest rates.
b. buy bonds to lower interest rates.
c. sell bonds to raise interest rates.
d. sell bonds to lower interest rates.
c
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Suppose a country has only a sales tax. Now suppose it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium
a. interest rates and the equilibrium quantity of loanable funds rise. b. interest rates rise and the equilibrium quantity of loanable funds fall. c. interest rates fall and the equilibrium quantity of loanable funds rise. d. interest rates and the equilibrium quantity of loanable funds fall.
Monetary policy under a fixed exchange-rate regime will be
A. more effective than fiscal policy. B. more powerful with high capital mobility than with low capital mobility. C. constrained and relatively ineffective. D. likely to cause large and persistent deficits.