According to the Taylor rule, if there is a recessionary gap of 2 percent of potential output and inflation is 4 percent, what real interest rate will the Fed set?
A. 0.015
B. 0.025
C. 0.03
D. 0.02
Answer: D
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If the central bank targets a rate of nominal GDP growth, then it would have to _____ money growth when nominal GDP fell below its target in order to _____ inflation and ____ real GDP
a. increase; increase; increase b. increase; decrease; decrease c. decrease; decrease; decrease d. decrease; decrease; increase
The Paradox of Leverage states that:
a. Excessive leverage is really just an illusion. It occurs when companiesmisestimate the value of their assets and equity. b.When a single firm, in isolation, tries to de-lever its balance sheet, the net effect is often for its leverage to rise. c. Leverage is a puzzle (i.e., a paradox) and always will be. d. When a large portion of the market tries to de-lever its balance sheet, asset prices fall, thereby causing leverage to increase (not decrease). e. None of the above.
Monopolistically competitive firms can earn profits in the long run by:
A. monopolistically competitive firms only earn zero profits in the long run. B. continually innovating to differentiate their product. C. price discriminating. D. further minimizing their costs.
In the long run, if the prices of goods and services are higher than before the aggregate quantity:
A. demanded will be lower. B. demanded will be higher. C. supplied will be higher. D. supplied will not change.