Figwre 27- Price level LRAS SRAS AD, AD AD, Real GDP 27) Refer to Figure 27-1. S

Question

Figwre 27- Price level LRAS SRAS AD, AD AD, Real GDP 27) Refer to Figure 27-1. Suppose the economy is in short-run equilibrium above potential CDP and 27)_ wages and prices are rising. If contractionary policy is used to move the econommy back to long run equilibrium, this would be depicted as a movement from using the static AD-AS model in the figure above. (you have to identify where the short run equilibrium is and where it moves to after contractionary policy is used) A) B to A B) A to E C) E to A D) D to C E) C to B 28) To decrease the money supply, the Federal Reserve could 28) A) conduct an open market purchase of Treasury securities. B) raise income taxes. C) raise the required reserve ratio. D) lower the discount rate. 29) Rising prices erode the value of money as a A) store of value; unit of barter C) unit of barter; unit of account and as a B) medium of exchange; store of value D) store of value; unit of liquidity 29) 30) The Federal Reserve was established in 1913 to A) stimulate the economy by increasing bank reserves B) prevent bad loans by requiring banks to hold reserves C) prevent inflation by decreasing the money supply D) stop bank panics by acting as a lender of last resort C-4

Explanation / Answer

27) C to B, option (E)

28) The correct option is ©. This will raise the amount of reserves that banks are required to maintain with them reducing the amount they can loan out.

(A) incorrect is an expansionary MP and increase Money Supply.

(B)incorrect is a fiscal policy

29) The correct option is (B). Because the store value is worth less now also less can be purchased with the money at hand.

(30) The correct option is (A)

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