Long-run equilibrium in the goods and services market requires that decision makers who agreed to long-term contracts must have
a. incorrectly anticipated the level of prices when they made the agreements.
b. correctly anticipated the level of prices when they made the agreements.
c. correctly anticipated the natural rate of unemployment when they made the agreements.
d. correctly anticipated actual GDP when they made the agreements.
B
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The price reflecting the true social opportunity costs of a resource is known as
(a) a shadow price. (b) an equilibrium price. (c) a world price. (d) a price index.
Economists have focused more attention on the formation of expectations in recent years. This increase in interest can probably best be explained by the recognition that
A) expectations influence the behavior of participants in the economy and thus have a major impact on economic activity. B) expectations influence only a few individuals, have little impact on the overall economy, but can have important effects on a few markets. C) expectations influence many individuals, have little impact on the overall economy, but can have distributional effects. D) models that ignore expectations have little predictive power, even in the short run.
When real GDP is below natural real GDP, the unemployment rate is
A) rising. B) above the average unemployment rate. C) falling. D) below the average unemployment rate.
The idea that people will not consciously make decisions that make them worse off is known as
A) rationality assumption. B) the decision duality. C) Adam Smith's doctrine. D) incentive assumption.