Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134079271
Author: CASE
Publisher: PEARSON
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Chapter 26, Problem 2.1P
To determine

The changes in investment, consumption, and GDP (Gross domestic product).

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Suppose the economy is experiencing a recession. If the Federal Reserve enacts expansionary monetary policy, interest rates will likely Multiple Choice   rise causing investment to increase.   fall causing investment to increase.   fall causing investment to decrease.   rise causing investment to decrease.
If the U.S. economy enters a new financial crisis, the government may use monetary policy tools to avert a financial meltdown. The government may utilize monetary policy tools to avert a financial collapse if the U.S. economy experiences another financial crisis. First, the Federal Reserve should operate as a lender of last resort and make loans to banks and financial institutions to meet their short-term obligations. When the risk of a financial collapse has receded, the government should revert to its traditional expansionary monetary policy. Open market activities of buying and selling assets on the open market is one action the government may use. Through open market operations, the government may increase the economy's liquidity by purchasing assets from banks and the general public. Reducing the discount rate, i.e. the interest rate at which the central bank provides short-term loans to banks, will result in a decrease in the rate at which commercial banks offer loans to the…
Q2-20 Other things equal, if the demand for money becomes more elastic, then the LM curve will become _______.In other words, a given rise in the interest rate will, in order for money market equilibrium to be preserved, be associated with a ________ rise in income. Select one: a. less elastic / smaller b. less elastic / larger c. more elastic / smaller d. more elastic / larger
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