Homework Help: macroecon

Posted by angad on Sunday, March 14, 2010 at 6:41pm.

Assume that there is equilibrium in both the goods and the money market at all times. Suppose that the president of the United States has decided to start a war. The government will have to increase spending to pay for weapons, equipments, and transportation.

What, if anything, can the Fed do to keep the interest rate at its initial level despite the increase in government expenditure?

A. The Fed can advise consumers to increase consumption and urge firms to increase investment.

B. The Fed cannot control the interest rate, because the president started the war.

C. The Fed can decrease the money supply by the appropriate amount.

D. The Fed can increase the money supply by the appropriate amount.

I believe that the Fed can increase money supply so this can lower the interest rate. Is this correct, please help!

No one has answered this question yet.

Answer this Question

Related Questions

econ - Consider the following data about the goods market in a hypothetical ...
econ - Consider the following data about the goods market in a hypothetical ...
macroecon - Assume that there is equilibrium in both the goods and the money ...
econ - Suppose there are 1000 identical firms producing diamonds. Diamond miners...
econ - Suppose there are 1000 identical firms producing diamonds. Diamond miners...
Economics - The circular flow of economic activity can be summed up as: A. ...
Economics - You should start a new post instead of adding on to an existing post...
micro economics - For each event, illustrate the impact on the relevant market ...
macro economics - For each event, illustrate the impact on the relevant market ...
managerial economics - Suppose the inverse market demand equation is P = 80 &...

For Further Reading

First Name:
School Subject:
Answer: