Normative economic analysis involves
A) true statements of facts only.
B) testable hypotheses by scientists.
C) value judgments and opinions.
D) purely descriptive statements.
C
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According to the equation of exchange, an increase in either velocity or the money supply will
A. cause GDP to rise. B. not affect the price level. C. cause the price level to fall. D. cause GDP to fall.
According to the rational expectations hypothesis, the occurrence of unemployment is due to
A. downwardly rigid wages. B. imperfect information. C. unpredictable shocks. D. a deficient level of aggregate demand.
Answer the following questions true (T) or false (F)
1. An appropriate fiscal policy response when aggregate demand is growing at a faster rate than aggregate supply is to decrease the money supply. 2. To complement actions by the Fed to reduce inflation, Congress and the President can cut spending and/or raise taxes. 3. The multiplier effect following an increase in expenditure is generated by induced increases in consumption expenditure as income rises.
If the equilibrium price of gasoline is $4.00 per gallon and the government will not allow oil companies to charge more than $3.00 per gallon of gasoline, which of the following will happen?
A. Demand must eventually decrease so that the market will come into equilibrium at a price of $3.00. B. The market will be in equilibrium at a price of $3.00. C. A nonprice rationing system such as ration coupons must be used to ration the available supply of gasoline. D. Supply must eventually increase so that the market will come into equilibrium at a price of $3.00.