Why is it important for people who won stocks and bonds to diversify their
holdings? What type of financial institution makes diversification easier?
It is important for people who own stocks and bonds t
1. Draw the short-run trade-off between inflation and unemployment. How
might the Fed move the economy from one point on this curve to another?
Figure 5 shows the short-run trade-off between inflat
1. What are demand deposits and why should they be included in the stock of
Demand deposits are balances in bank accounts that depositors can access on demand simply by
writing a check. They should b
Macro Economics Quiz Questions of Ch 32
1, 3 and 4 in questions for review
9 and 10 in problems and applications
What is the theory of liquidity preference? How does it help
explain the downward slope of the aggregate-demand curve?
The theory of liquidity preference is Keynes's theory of how the interest rate is de
1. Draw a diagram with aggregate demand, short-run aggregate supply, and
long-run aggregate supply. Be careful to label the axes correctly.
Figure 3 shows aggregate demand, short-run aggregate supply, and l
1. Describe supply and demand in the market for loanable funds and the market for
foreign-currency exchange. How are these markets linked?
The supply of loanable funds comes from national saving; the demand
Define net exports and net capital outflow. Explain how and why they are
The net exports of a country are the value of its exports minus the value of its imports. Net capital
outflow refers to t
1. According to the Fisher effect, how does an increase in the inflation
rate affect the real interest rate and the nominal interest rate?
According to the Fisher effect, an increase in the inflation rate r
1. Why is frictional unemployment inevitable? How might the government reduce
the amount of frictional unemployment?
Frictional unemployment is inevitable because the economy is always changing. Some firms
Quiz Questions of the chapter 25.
does the level of a nations GDP measures? WHAT does the growth rate of
GDP measure? Would you rather live in a nation with a high level of GDP and a
low growth rate or in a nation with a low level of GDP and a hig
The three problems in the consumer price index as a measure of the cost of living are:
(1) substitution bias, w