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 […]
Economic theory suggests that ________ interest rates are ________ important than ________ interest rates in explaining investment behavior. A) nominal; more; real B) real; less; nominal C) real; more; nominal D) market; more; real ANSWER C
The increase in income generated by the additional government expenditure decreases the demand for money. Indicate whether the statement is true or false ANSWER FALSE
Suppose that from a new checkable deposit, First National Bank holds eight million dollars on deposit with the Federal Reserve, one million dollars in required reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars in excess reserves. A) two B) eight […]
Potential weaknesses of nominal GDP targeting include A) it requires accurate estimates of potential GDP growth, which are not easy to achieve. B) it implies that the central bank will respond to slowdowns in the real economy even if inflation is not falling. C) real GDP growth that is below potential or inflation that is […]
People have a strong incentive to form rational expectations because A) they are guaranteed of success in the stock market. B) it is costly not to do so. C) it is costly to do so. D) everyone wants to be rational. ANSWER B
Leading, coincident, and lagging indicators are based on the concept that: A) expectations of future inflation is the driving force of the economy. B) expectations of future profits are the driving force of the economy. C) expectations of future unemployment is the driving force of the economy. D) none of the above. ANSWER B
All of the following are characteristics of long-run equilibrium for firms in a monopolistically competitive market except: A) price equals marginal cost. B) price equals average total cost. C) marginal cost equals marginal revenue. D) price exceeds the minimum of average total cost. ANSWER A
Traders working for banks are subject to the A) principal-agent problem. B) free-rider problem. C) double-jeopardy problem. D) exchange-risk problem. ANSWER A
Everything else held constant, an increase in net taxes ________ aggregate ________. A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply ANSWER B
