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Question 24 (1 point) Suppose the economy is at full employment, and the government decides it wants to build a dam at a cost of $1 billion. The government does not have to borrow to build the dam. The people the government hires to build the dam would have built a skyscraper at a cost of $1 billion. According to what we learned in class, which of the following is true: Net effect on GDP is approximately zero GDP will increase by $1 billion GDP will decrease by $2 billion Inflation will increase Question 25 (1 point) The Self-Correcting view believes that in a recession_ there are forces in the markets that automatically move the economy back to full employment only monetary policy can effectively restore full employment the government should encourage business spending on research and development the economy could be below full employment for long periods of time Question 26 (1 point) Suppose the demand for federal funds shifts from D1 to D2, and the Fed wants to keep the interest rate constant. How do we expect the Fed to respond using open market operations? Federal Funds Rate (percent) OH NW A U Q V OO 6 5 D1 D 10 20 30 40 50 60 Quantity of Reserves (dollars) Cut taxes Buy treasuries to put cash in the market Sell treasuries and get cash out of the market Increase the discount rate Increase the money multiplier