Explain the importance of the shape of supply curve for undertaking stabilization policies
If the aggregate supply curve is flat, expansionary fiscal or monetary policy that raises the aggregate demand curve can buy large gains in real GDP at low cost in terms of inflation. Conversely, when the supply curve is flat, a restrictive stabilization policy is not a very effective way to bring inflation down. Instead, it serves mainly to reduce real output. If the aggregate supply curve is steep expansionary fiscal or monetary policies will cause a good deal of inflation without boosting real GDP much. Contractionary policy is an effective way to bring down the price level without much sacrifice of output.
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Lowering the required reserve ratio __________ the simple deposit multiplier which will __________ the economy's money supply
A) raises; increase B) raises; decrease C) lowers; increase D) lowers; decrease
The U.S. is a net importer of agricultural products.
a. true b. false
If a particular measure of real GDP consistently underestimates growth in real GDP, then the rate of inflation as measured by the GDP deflator
A) will be biased upward. B) will be biased downward. C) will be unbiased. D) cannot be calculated.
When discussing rules that governments use to intervene in a market, we can take a ________ approach where we discuss what governments should do, or a ________ approach where we discuss what governments actually do
A) normative; positive B) positive; normative C) optimistic; cynical D) bipartisan; normative