5 If the Federal Reserve wishes to avoid short run increases in the

5 if the federal reserve wishes to avoid short run

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5.If the Federal Reserve wishes to avoid short-run increases in the unemployment rate, the correct response to a negative AD shock would be: A) an increase in government spending growth. E)a tax cut. F)an increase in money supply growth. G)a lower goal for inflation. 6.If businesses react to a pessimistic outlook and decrease spending, the Fed can counteract this by: A)decreasing money supply growth to spur the economy out of the recession. B)increasing money supply growth, lowering real interest rates, and encouraging borrowing. C)increasing government expenditures to spur the economy out of the recession. D)decreasing corporate taxes to encourage firms to increase their spending. 7.The most appropriate monetary policy response to an asset price bubble for a central bank is to: E)react to asset price bubbles because they can easily be identified. F)not react to asset price bubbles because its actions will lead to a recession. G)react to asset price bubbles aggressively because they cannot be popped any other way. H)not react to asset price bubbles because monetary policy can only affect aggregate demand, not demand in a specific market.
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Figure: Monetary Policy 8.(Figure: Monetary Policy) Refer to the figure. Assume that the economy is initially at point Yin the graph. In the best case scenario, the Fed will: A)increase money supply to take the economy to point X. B)decrease money supply to take the economy to point W. C)increase money supply to take the economy to point W. D)decrease money supply to take the economy to point X. 9.(Figure: Monetary Policy) Refer to the figure. Assume that the economy is initially at point Yin the graph. If the Fed takes the appropriate action with monetary policy, but banks are slow to lend, then: E)the Fed action would be magnified and the economy would move to point X.
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