In preparing their estimates of the stimulus package's effect on GDP, Obama administration economists estimated a government purchases multiplier of 1.57. Economist Robert Barro argues that during wartime, the military expenditures multiplier would be
________ the administration's estimate of the government purchases multiplier, and economists Lawrence Christiano, Martin Eichenbaum, and Sergio Rebelo argued that when short-term interest rates are zero, the government purchases multiplier would be ________ the administration's estimate.
A) higher than; lower than
B) lower than; higher than
C) higher than; equal to
D) equal to; lower than
Answer: B
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Under monetary stabilization policy in the New Keynesian model, following a drop in output, the central bank should
A) increase the price level. B) decrease the price level. C) increase the interest rate. D) decrease the interest rate.
Which of the following production functions exhibits constant returns to scale?
A) q = KL B) q = KL0.5 C) q = K + L D) q = log(KL)
Briefly describe what happens when a perfectly competitive firm increases the total quantity it supplies of a good
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A. the buyer. B. the seller. C. both the buyer and the seller. D. neither the buyer nor the seller.