Question

Q.1; The Fed’s “dual mandate” includes ______, and the policy instruments available to the Fed as it tries to achieve its dual mandates _______ .

a. zero inflation and moderate long-term interest rates; the government budget deficit or surplus

b. maximum economic growth and zero inflation; the federal funds rate

c. maximum aggregate demand and aggregate supply; government expenditure on goods

d. maximum employment and stable prices; the federal funds rate.

Q.2; One of the major reasons why the United States exports jet airplanes is:

a. the U.S. can sell jet airplanes at a higher price than other nations.

b. the U.S. owns more physical endowments, such as mineral resources, than other countries.

c. foreign nations have a higher opportunity cost of production of jet airplanes.

d. the U.S. is able to outproduce other countries in jet airplanes.

Answer 1

Q1) Option b. maximum economic growth and zero inflation; the federal funds rate.

The Fed's dual mandate policy is maximizing employment and stabilising prices. Maximum employment would only occur when there is maximum economic growth and prices would be stabilised when there is zero inflation. The federal funds rate fulfills these two targets by using the federal funds rate which is the rate charged by the financial institutions for loans in the overnight borrowing market.

Q2) Option c. foreign nations have a higher opportunity cost of production of jet airplanes.

A country specializes and trades with another country when it has a lower opportunity costs than another country in terms of one good. When both country trades with each other in the good where they have a lower opportunity costs, both countries can consume a higher amount of goods after trading than if they had just produced and consumed both goods domestically. This theory applies to many countries as well and so this is one of the main reason that United States exports jet planes to foreign nations.