Under what economic circumstances would the Fed tend to use an expansionary monetary policy and when would it use a contractionary monetary policy? What would happen to the money supply in each of these situations?
What will be an ideal response?
The Fed would use an expansionary monetary policy if it is trying to stimulate the economy in times of economic recession. With an expansionary monetary policy, the money supply increases.
The Fed would use a contractionary monetary policy if it is trying to reduce inflationary pressure. With a contractionary monetary policy, the money supply decreases.
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The concept of mean reversion is defined by
a. the tendency of profits to revert to zero b. the tendency of costs to revert to zero c. the tendency of economic profits to revert to zero d. the tendency of profits to revert to negative
Which of the following statements is false?
A) Purchasing power and the price level are inversely related. B) The real balance effect refers to the change in the purchasing power of dollar-denominated assets as a result of a change in the price level. C) The aggregate demand curve slopes downward because of the real balance, interest rate, and international trade effects. D) A change in the quantity demanded of Real GDP is directly brought about by a change in interest rates.