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If the impact on tax revenues is the same, does it make any difference whether the government cuts taxes by (a) reducing marginal tax rates or (b) increasing the personal exemption allowance? Explain. The “cash for clunkers” program of 2009 provided a subsidy of about $4,000 to those willing to buy a new car and […]

What makes money valuable? Does money perform an economic service? Explain. Could money perform its function better if there were twice as much of it? Why or why not? “People are poor because they don’t have very much money. Yet, central bankers keep money scarce. If people had more money, poverty could be eliminated.” Evaluate

What is meant by the statement “This asset is illiquid”? List somethings you own and rank them from most liquid to most illiquid. What determines whether a financial asset is included in the M1money supply? Why are interest-earning checkable deposits included in M1, whereas interest-earning savings accounts and Treasury bills are not?

The American Wind Energy Association argues for additional government support because wind-generated electricity creates more employment per kilowatt-hour than the alternatives: 27 percent more jobs than coal and 66 percent more than natural gas. Is this a sound economic argument for increased use of wind power? If the jobs created pay similar wages, what does

Why are banks able to maintain reserves that are only a fraction of the demand and saving deposits of their customers? Is your money safe in a bank? Why or why not? Suppose you withdraw $100 from your checking account. How does this transaction affect (a) the supply of money, (b) the reserves of your

The excess reserves of the banking system were quite large during mid-year 2011. If the banks use these excess reserves to extend additional loans, what will happen to the money supply? Explain. Is this a potential problem? Why or why not?

Why do people hold money? How will an increase in the interest rate influence the amount of money that people will want to hold? How would each of the following influence the quantity of money you would want to hold? a. an increase in the interest rate earned on checking deposits b. an increase in

If the Fed wants to expand the money supply, why is it more likely to do so by purchasing bonds and other financial assets rather than by lowering reserve requirements? Are the following statements true or false? a. “You can never have too much money.” b. “When you deposit currency in a commercial bank, cash

If the Federal Reserve does not take any offsetting action, what would happen to the supply of money if the general public decided to increase its holdings of currency and decrease its checking deposits by an equal amount? What is the federal funds interest rate? If the Fed wants to use open market operations to

Why do people hold money? How will an increase in the interest rate influence the amount of money that people will want to hold? How would each of the following influence the quantity of money you would want to hold? a. an increase in the interest rate earned on checking deposits b. an increase in