How might inflation, even if fully anticipated, prevent the classical dichotomy from holding, even in the long run?
What will be an ideal response?
The classical dichotomy asserts that output is determined solely by the aggregate production function and the quantities of factors available. Inflation is like a negative technology shock that lowers productivity. Shoe-leather and menu costs represent uses of resources that add nothing to aggregate output. Because price increases throughout the economy are spread out over time, it is rational to react to the temporary changes in relative prices, even if the changes are known to be temporary. This causes distortions in the allocation of resources, and temporary, rational distortions are distortions, nonetheless.
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In the simple linear regression model, the regression slope
A) indicates by how many percent Y increases, given a one percent increase in X. B) when multiplied with the explanatory variable will give you the predicted Y. C) indicates by how many units Y increases, given a one unit increase in X. D) represents the elasticity of Y on X.
The World Trade Organization is a successor organization to the
A) United Nations. B) World Bank. C) International Court of Justice. D) GATT.
Which of the following is the best example of a public good?
a. a government-run health care system b. the Walt Disney World amusement park c. national defense d. long-distance telephone service
Which of the following decreases in response to the interest-rate effect from an increase in the price level?
a. both investment and consumption b. consumption but not investment c. investment but not consumption d. neither investment nor consumption