Suppose the firms in a monopolistically competitive market are incurring economic losses. What will happen to move the market to its long-run equilibrium? A) More close substitutes will appear in the market until economic profits are zero. B) The firms that dropped out of the market will reenter once the level of economic losses is […]
If the government spending increases without an equal increase in taxes, the government must borrow funds in the financial markets. Indicate whether the statement is true or false ANSWER TRUE
State whether the following statement is true or false AND explain why: “A decrease in the discount rate will always cause a decrease in the federal reserve funds rate.” Indicate whether the statement is true or false ANSWER False. Since the discount rate is set above the federal funds rate, a decrease in the […]
An equal increase in all bond interest rates A) increases the return to all bond maturities by an equal amount. B) decreases the return to all bond maturities by an equal amount. C) has no effect on the returns to bonds. D) decreases long-term bond returns more than short-term bond returns. ANSWER D
Everything else held constant, a decrease in net exports ________ aggregate ________. A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply ANSWER B
Ending the “Great Inflation” era in the 1970s is an example of A) inflation targeting. B) exchange rate targeting. C) central bank independence. D) appointment of a more conservative central banker. E) all of the above. ANSWER D
An example of the problem of ________ is when a corporation uses the funds raised from selling bonds to fund corporate expansion to pay for Caribbean cruises for all of its employees and their families. A) adverse selection B) moral hazard C) risk sharing D) credit risk ANSWER B
Everything else held constant, an increase in planned investment expenditure ________ aggregate ________. A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply ANSWER A
Any firm that operates in an imperfectly competitive market faces a downward-sloping demand curve for its product. Indicate whether the statement is true or false ANSWER TRUE
According to rational expectations A) expectations of inflation are viewed as being an average of past inflation rates. B) expectations of inflation are viewed as being an average of expected future inflation rates. C) expectations formation indicates that changes in expectations occur slowly over time as past data change. D) expectations will not differ from […]
