The nominal interest rate in Autarkia has risen sharply after a change in a government policy. How will this affect the economy if the wages in the country are downwardly rigid?
What will be an ideal response?
If the nominal interest rate in Autarkia rises sharply after a change in government policy, both consumption and investment will fall. As a result, labor demand will fall. If wages are downwardly rigid, this will lead to a large increase in unemployment. As more workers become unemployed, the number of mortgage defaults, household bankruptcies, and firm bankruptcies will increase. This, in turn, further reduces consumption and investment.
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The Ricardian equivalence theorem states that
A) spending on national defense is a direct expenditure offset. B) an increase in government spending by the federal government leads to offsetting reductions in state government spending. C) government spending financed by taxes is equivalent to government spending financed by borrowing. D) an increase in government spending financed by higher taxes has no effect on aggregate demand.
What matters to people is the real value of money or income
Indicate whether the statement is true or false
At the end of World War II in 1945, many economists and business managers expected that the U.S. economy would enter a severe recession. At that time, Sears and Montgomery Ward were the two largest department store chains in the country
Sears CEO Robert Wood expected continuing prosperity and opened new stores. Montgomery Ward CEO Sewell Avery expected falling incomes and rising unemployment and closed a number of existing stores. The results of their actions were seen during the late 1940s, when A) Sears declared bankruptcy and was purchased by Montgomery Ward. B) Montgomery Ward weathered the economic downturn in better financial shape than Sears. C) Sears had to close many of the new stores it had opened following the end of the war. D) Sears rapidly gained market share at Montgomery Ward's expense.
Higher than expected inflation rate: a. shifts short-run Phillips curve to the right
b. shifts long-run Phillips curve to the right. c. shifts both short-run and long-run Phillips curve to the right. d. shifts short-run Phillips curve to the left.