Question

Question 16 (3 points) An expansionary monetary policy by the Fed should lead to: 

A decrease in investment and a decrease in aggregate demand. Leave investment unchanged but decrease aggregate demand.

An increase in investment and an increase in aggregate demand.

An increase in investment and a decrease in aggregate demand.

 

Question 17 (3 points) Federal Reserve policy may have little impact on aggregate demand if:

Exchange rates do not respond to a change in market interest rates.

Investment by firms fails to respond to lower interest rates.

Banks meet their reserve requirements.

People fail to spend the extra money they receive when the Fed cuts taxes.

 

Question 18 (3 points) A liquidity trap is said to exist when a change in monetary policy has no effect on:

The supply of government bonds.

The natural level of employment

Aggregate supply.

Interest rates.

 

Question 19 (3 points) Because of the problem of lags, monetary authorities should probably respond to conditions:

Expected to exist in the future.

Immediately as they arise.

In the recent past.

Based on past statistics.