Refer to the diagram and assume the economy is initially at point b 1 . Point c 1 represents:
A. a stable position because reality and expectations are consistent.
B. a stable position because full employment and a constant annual inflation rate are
represented.
C. an unstable situation because government will undertake contractionary policies.
D. an unstable situation because nominal wage rates will increase.
D. an unstable situation because nominal wage rates will increase.
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The interest parity condition requires that:
A) all countries have the same interest rate. B) there is a unique exchange rate for every output level. C) purchasing power parity hold. D) interest rates are fixed in the short run. E) the money supply is held constant.
If there are human capital externalities, then
A) human capital should be taxed. B) convergence in per capita incomes occurs. C) differences in human capital across countries can persist. D) pollution is a problem.
Fractional reserve banking can be thought of as a bank
A) withholding a portion of its total deposits that are not loaned out. B) holding deposits equal to its net worth. C) paying a fraction of its profit to depositors. D) loaning out all of its reserves.
When government increases a fixed tax, consumption schedule
a. shifts downward in a parallel manner. b. shifts upward in a parallel manner. c. becomes horizontal. d. becomes vertical.