Classical economists believe that the economy tends naturally toward
a. full employment and zero inflation equilibrium without government interference
b. zero unemployment and zero inflation as long as the Federal Reserve keeps interest rates low
c. high unemployment unless the Federal Reserve constantly adjusts the money supply
d. high inflation unless the government curbs its spending habits and cuts tax rates to spur economic activity
e. monetary equilibrium as long as money velocity is less than one
A
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An economy produces only two goods: paper and scissors. Dyes from paper production pollute a nearby river. Use a production possibilities curve (PPC) to illustrate your explanation of how the unfettered market would fail to provide the efficient mix of paper and scissors.
What will be an ideal response?
List the characteristics of a perfectly competitive market
What will be an ideal response?
Which of the following is not a member of the Federal Open Market Committee (FOMC)?
A) The entire board of governors B) Five reserve bank presidents C) The chairman of the SEC D) All of the above are members of the FOMC.
Jake experiences an increase in his wages. The hours of labor that he supplies to the market would decrease if
a. the income effect is larger than the substitution effect. b. the substitution effect is larger than the income effect. c. neither the income effect nor the substitution effect apply to Harry's labor-leisure tradeoff. d. Jake views both labor and leisure as inferior goods.