If potential output equals 4,000 and short-run equilibrium output equals 3,500, there is a ________ gap and the Federal Reserve must ________ real interest rates in order to close the gap.
A. expansionary; raise
B. recessionary; raise
C. recessionary; reduce
D. recessionary; not change
Answer: C
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A decline in the exchange rate could have been caused by which of these factors?
A) A decline in domestic output (income) B) An increase in the domestic real interest rate C) A decline in the world demand for domestic goods D) An increase in foreign output (income)
Special interest legislation is inefficient because of logrolling
a. True b. False
Explain the main arguments in favor of economic stabilization
A useful economic model
A. yields usable predictions and implications for the real world. B. generates statements that are incapable of refutation. C. represents every detail of the real world. D. utilizes only the two most important factors to analyze the problem under consideration.