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In the early 1980s, new legislation allowed banks to pay interest on checking deposits, which they could not do previously. a. If we define money to include checking deposits, what effect did this legislation have on money demand? Explain. b. If the

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The economy is in a recession with high unemployment and low output. a. Draw a graph of aggregate demand and aggregate supply to illustrate the current situation. Be sure to include the aggregate-demand curve, the short-run aggregate-supply curve, and the long-run aggregate-supply

Question
Consider two policies—a tax cut that will last for only one year and a tax cut that is expected to be permanent. Which policy will stimulate greater spending by consumers? Which policy will have the greater impact on aggregate demand? Explain.

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Suppose a computer virus disables the nation’s automatic teller machines, making withdrawals from bank accounts less convenient. As a result, people want to keep more cash on hand, increasing the demand for money. a. Assume the Fed does not change the money

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The Federal Reserve expands the money supply by 5 percent. a. Use the theory of liquidity preference to illustrate in a graph the impact of this policy on the interest rate. b. Use the model of aggregate demand and aggregate supply to

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Explain how each of the following developments would affect the supply of money, the demand for money, and the interest rate. Illustrate your answers with diagrams. a. The Fed’s bond traders buy bonds in open-market operations. b. An increase in credit-card availability

Question
Give an example of a government policy that acts as an automatic stabilizer. Explain why the policy has this effect.

Subject
business-economics

Question
Suppose that survey measures of consumer confidence indicate a wave of pessimism is sweeping the country. If policymakers do nothing, what will happen to aggregate demand? What should the Fed do if it wants to stabilize aggregate demand? If the Fed does

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The government spends $3 billion to buy police cars. Explain why aggregate demand might increase by more than $3 billion. Explain why aggregate demand might increase by less than $3 billion.

Subject
business-economics

Question
Use the theory of liquidity preference to explain how a decrease in the money supply affects the aggregate-demand curve.

Subject
business-economics