The rational expectations argument relies on
A) wages and prices being sticky so that changes in expectations about future economic activity and the price level will prevent the short-run aggregate supply curve from shifting quickly to restore long-run equilibrium.
B) the ability of monetary policy authorities to identify and respond quickly to close output gaps and restore the economy to its long-run equilibrium.
C) wages and prices being sufficiently flexible so that the change in expectations about future economic activity and the price level will allow the short-run aggregate supply curve to shift quickly to restore long-run equilibrium.
D) wages and prices being sufficiently flexible so that changes in expectations about future economic activity and the price level will allow the aggregate demand curve to shift quickly to restore long- run equilibrium.
Answer: C) wages and prices being sufficiently flexible so that the change in expectations about future economic activity and the price level will allow the short-run aggregate supply curve to shift quickly to restore long-run equilibrium.
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If the consumption function is C = 25 + 0.9y and income increases by $100, then savings will increase by
A) $10. B) $25. C) $90. D) $115.
In general, price controls have a:
A. larger effect in the long run because demand and supply become more elastic over time. B. larger effect in the short run since demand and supply become more elastic over time. C. smaller effect in the long run since demand and supply become less elastic over time. D. smaller effect in the short run because demand and supply become less elastic over time.
Policies such as rent control and trade barriers persist
a. because economists are about evenly divided as to the merits of those policies. b. because almost all economists agree that those policies have no discernible economic effects. c. because almost all economists agree that those policies are desirable. d. despite the fact that almost all economists agree that those policies are undesirable.
An increase in the spending multiplier causes the IS curve to
A. become flatter. B. shift to the left. C. become steeper. D. shift temporarily to having a positive slope.