Suppose that there is a negative aggregate demand shock and the central bank commits to an inflation rate target. If the commitment is credible, then A) the public’s expected inflation will remain unchanged. B) the short-run aggregate supply curve will rise. C) over time inflation will fall. D) all of the above. E) both A […]
Which of the following would be least likely to lead the Justice Department and the FTC to block a proposed horizontal merger? A) A finding that the resulting firm might be able to unilaterally affect price and output. B) A finding that the potential for entry into the market by new firms would be adversely […]
The ________ is defined as the payments to the owner plus the change in a security’s value expressed as a fraction of the security’s purchase price. A) yield to maturity B) current yield C) rate of return D) yield rate ANSWER C
Total Reserves minus vault cash equals A) bank deposits with the Fed. B) excess reserves. C) required reserves. D) currency in circulation. ANSWER A
In rational expectations theory, the term “optimal forecast” is essentially synonymous with A) correct forecast. B) the correct guess. C) the actual outcome. D) the best guess. ANSWER D
Everything else held constant, an autonomous monetary policy easing ________ aggregate ________. A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply ANSWER A
Which of the arguments Staples and Office Depot made in defense of their proposed merger would be least defensible on economic grounds? A) There would be substantial economies of scale. B) The two firms were in competition with all other office supply stores, not just office supply superstores. C) The history of low pricing by […]
Higher prices and price increases combined with lower real output and income, resulting from a major increase in input prices in the economy is called: A) deflation. B) inflation. C) stagflation. D) none of the above. ANSWER C
In the general textbook treatment, the firm’s short run average variable and average total cost curves are U-shaped, while the average fixed cost curve is downward sloping over the entire range of output. Explain why. What will be an ideal response? ANSWER The U-shaped AVC and ATC curves reflect the effects of diminishing marginal […]
Financial intermediaries provide customers with liquidity services. Liquidity services A) make it easier for customers to conduct transactions. B) allow customers to have a cup of coffee while waiting in the lobby. C) are a result of the asymmetric information problem. D) are another term for asset transformation. ANSWER A
