To achieve long-run equilibrium in an economy with a recessionary gap, without the use of stabilization policy, the inflation rate must:
A. not change.
B. increase.
C. decrease.
D. either increase or decrease depending on the relative shifts of AD and AS.
Answer: C
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What is the opportunity cost of moving from point B to point A?
Business cycle persistence refers to the property that
A) real GDP is rarely exactly at trend. B) booms and recessions last a long time. C) when real GDP is above trend, it tends to stay above trend, and when it is below trend, it tends to stay below trend. D) business cycles are persistently hard to predict.
Positive economics deals with
a. value judgments b. how the economy does work c. how the economy should work d. how the federal government should operate e. what the price level should be
Suppose the government imposes a $2 per-unit tax on an item whose production creates a negative externality. Suppose the $2 is exactly the value of the external cost. If the government uses the tax revenue to clean up pollution created by this production,
a. an optimal allocation of resources has been achieved b. the market's equilibrium price is an efficient one c. no externalities exist d. there is no market failure e. it is clear that obligatory controls have worked