Answer the following statements true (T) or false (F)
1. If the money supply growth is set at a slower pace than the growth of real GDP, then inflation will occur.
2. Rational expectations theory suggests that changes in people's expectations in response to changes in fiscal and monetary policy changes will make such policy-changes ineffective.
3. Monetarists believe that a monetary policy rule will tend to lead to inflation.
4. The mainstream view of the economy since 1946 is that it has become more stable because of the use of discretionary fiscal and monetary policies.
5. Monetarists and rational-expectations theorists both favor policy rules and both argue against discretionary policy.
1. F
2. T
3. F
4. T
5. T
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If the government is most interested in minimizing excess burden of an excise tax, should it impose the tax on goods that are elastic or on goods that are inelastic?
What will be an ideal response?
Which one of the following would benefit financially from unanticipated inflation?
A) a borrower whose loan has a fixed nominal interest rate B) a borrower with an adjustable rate mortgage C) a bank that has made loans at a fixed nominal interest rate D) a firm whose workers are covered by a COLA agreement
Consider the relationship given by QCars = 100 + 4 × PCars - 2 × PSteel - 0.2 × PWorkers, where QCars is the quantity of cars supplied (in thousands), PCars is the price of cars (in thousands of dollars), PSteel is the price of steel, and PWorkers is the wage earned by autoworkers. If the price of steel is $10 per unit and the price of workers (the wage) is $20, what is the supply curve for cars?
A. QCars = 124 + 4 × PCars B. QCars = 100 + 4 × PCars - 2 × PSteel - .2 × PWorkers C. QCars = 100 + 4 × PCars D. QCars = 76 + 4 × PCar
What is the opportunity cost of a decision?
What will be an ideal response?