The classical economists believed that a. labor supply is upward sloping because the income effect is greater than the substitution effect. b. labor supply is upward sloping because the substitution effect is greater than the income effect. c. labor supply is downward sloping because the income effect is greater than the substitution effect. d. in […]
New classical economics a. resulted from the high inflation and unemployment of the 1970s. b. developed in an era of high inflation and unemployment during the 1970s. c. resulted from the dissatisfaction associated with the prevailing Keynesian orthodoxy. d. Both b and c. e. all of the above. ANSWER E
Goods in the CPI inflation are weighted by a. the price of each good. b. the share of each good in GDP. c. the share of each good in the budget of an average household. d. the share of each good in total consumption. ANSWER C
When a price shock has occurred, inflation returns to its pre-shock rate ________. A) in the period following the price shock B) in the period when output has returned to its pre-shock rate C) once the output gap has returned to zero D) only in the long run E) none of the above ANSWER […]
Keynes believed that the instability in income was caused by variability in a. investment. b. taxes. c. consumption and savings. d. government spending. ANSWER A
What is the argument against the use of autonomous tightening of monetary policy in response to a credit-driven asset-price bubble? What will be an ideal response? ANSWER Though a bubble may have begun with an abundance of credit seeking a profitable use, restricting credit is unlikely to dampen enthusiasm for assets that are “known” […]
A production function relates a. the level of output to the level of technology. b. the price level to the level of aggregate output. c. aggregate output to the level of inputs and technology. d. aggregate demand to aggregate supply. ANSWER C
The intuition behind the slope of the LM curve is that a. as the interest rate increases, the money supply increases and income increases. b. as the interest rate increases, investment and income decreases. c. as income increases, money demand increases which increases interest rates. d. as income increases, money demand decreases which decreases interest […]
A production function describes the A) technological possibilities for converting factor inputs into outputs. B) intellectual possibilities for converting factor inputs into outputs. C) amount of resources available to the representative firm. D) actual process of converting factor inputs into outputs. ANSWER A
According to Figure 5.1, the real interest rate is relatively low in ________. A) Brazil B) Turkey C) Argentina D) Japan E) Indonesia ANSWER B
