Suppose the output gap is zero, and policy makers wish to reduce the inflation rate from 10 percent to 5 percent. Which of these policies seems best? A) contractionary policies to reduce output at least 5 percent below potential output B) a convincing declaration of the inflation rate target, so that expected inflation falls to […]
If Y>C+I+G but Md= Ms, then a. interest rates must rise and output must fall. b. both interest rates and output must fall. c. interest rates must fall and output must rise. d. both interest rates and output must rise. e. none of the above. ANSWER B
At any point on the LM curve a. there is labor market equilibrium. b. money supply equals money demand. c. equilibrium output equals potential output. d. both commodity and money market are necessary for equilibrium. e. both b and c. ANSWER B
According to new classical model, real wages a. rise when income rises. b. falls when income rises. c. do not move within income. d. fall if the expected price level is too high and rise if the expected price level is too low. e. none of the above. ANSWER B
How does macroprudential regulation relate to conventional measures to prevent fraud and promote transparency? What will be an ideal response? ANSWER Conventional measures address the danger that particular firms and individuals might engage in behaviors contrary to the interests of others. Macroprudential regulation addresses the danger that behaviors that seem benign in isolation may, […]
Why are changes in the output gap larger than changes in the unemployment gap? Why is the relationship expressed in Okun’s law not affected by inflation or expected inflation? What will be an ideal response? ANSWER Common sense suggests that output and unemployment must be negatively-related. However, the link between the two is employment. […]
Gross domestic product includes a. all intermediate and final goods and services produced. b. the current production of final goods and services with a country’s borders. c. exchanges of assets. d. the current production of final goods and services by a country’s citizens. e. All of the above ANSWER B
According to the simple Keynesian model, when planned expenditure exceeds income a. prices rise. b. unplanned inventory investment is negative. c. income falls. d. planned expenditure falls. e. both b and d. ANSWER B
With high inflation ________. A) stock market investors are always worse off than consumers and households B) producers are always worse off than consumers C) creditors are always worse off than debtors D) all of the above E) none of the above ANSWER C
When drawn against the current real wage, the labor demand curve is A) upward sloping because the marginal product of labor rises with the quantity of labor employed. B) upward sloping because the marginal product of labor declines with the quantity of labor employed. C) downward sloping because the marginal product of labor rises with […]
