This topic contains a solution. Click here to go to the answer

Author Question: Would the Federal Reserve respond more aggressively with interest rate cuts in a recession caused by ... (Read 80 times)

ashley

  • Hero Member
  • *****
  • Posts: 584
Would the Federal Reserve respond more aggressively with interest rate cuts in a recession caused by a decrease in spending, as in the 2001 recession, than in a recession caused by an increase in oil prices, as in the 1974-75 recession?
 
  What will be an ideal response?

Question 2

How does the production possibilities frontier illustrate opportunity cost?
 
  What will be an ideal response?



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

chinwesucks

  • Sr. Member
  • ****
  • Posts: 341
Answer to Question 1

The inflation rate responds differently in the two recessions. A large increase in oil prices decreases real GDP (or slows down the growth rate), but increases inflation. The large decrease in spending decreases real GDP and decreases inflation. The Fed wants to increase real GDP, but they also want to prevent an increase in inflation. Cutting interest rates increases aggregate demand which increases real GDP and increases inflation. With a recession caused by a drop in spending, the rate of inflation declines, which allows the Fed to more aggressively cut interest rates.

Answer to Question 2

The negative slope of the production possibility curve illustrates the concept of opportunity cost. Moving along the production possibility frontier, producing additional units of a good requires that the output of another good must fall. This sacrifice is the opportunity cost of producing more of the first good.




ashley

  • Member
  • Posts: 584
Reply 2 on: Jun 29, 2018
Excellent


Joy Chen

  • Member
  • Posts: 354
Reply 3 on: Yesterday
Great answer, keep it coming :)

 

Did you know?

One way to reduce acid reflux is to lose two or three pounds. Most people lose weight in the belly area first when they increase exercise, meaning that heartburn can be reduced quickly by this method.

Did you know?

Pope Sylvester II tried to introduce Arabic numbers into Europe between the years 999 and 1003, but their use did not catch on for a few more centuries, and Roman numerals continued to be the primary number system.

Did you know?

Thyroid conditions may make getting pregnant impossible.

Did you know?

If all the neurons in the human body were lined up, they would stretch more than 600 miles.

Did you know?

According to the American College of Allergy, Asthma & Immunology, more than 50 million Americans have some kind of food allergy. Food allergies affect between 4 and 6% of children, and 4% of adults, according to the CDC. The most common food allergies include shellfish, peanuts, walnuts, fish, eggs, milk, and soy.

For a complete list of videos, visit our video library