Answer the following statements true (T) or false (F)
1. In the monetarist view, the economy is inherently stable, but the mismanagement of monetary policy creates instability.
2. Monetarists argue that V in the equation of exchange is stable and thus a change in M will bring about a direct and proportional change in nominal GDP.
3. If M is $1,000, P is $8, and Q is 500, then V must be 6.
4. The equation of exchange indicates that an increase in money supply will always lead only to inflation.
5. Real-business cycle theory views changes in resource availability and technology as shifting aggregate demand and thus causing macroeconomic instability.
1. T
2. T
3. F
4. F
5. F
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Most economists believe that there are positive externalities in education. One can conclude that a free market would fail to give the socially optimal outcome because in comparison to the socially optimal (efficient) equilibrium, the inefficient equilibrium
A. price and quantity would be too high. B. price would be too low and quantity would be too high. C. price and quantity would be too low. D. price would be too high and quantity would be too low.
Economic analysis generally supports a country's use of tariffs if imports harm an industry or firm vital to national security.
Answer the following statement true (T) or false (F)
If the government begins to run a larger budget deficits, then assuming there is no Ricardo-Barro effect, the demand for loanable funds ________ and the real interest rate ________
A) decreases; falls B) decreases; rises C) increases; rises D) increases; falls
According to the substitution effect, a decrease in the price of a product leads to an increase in the quantity demanded because buyers:
a. purchase more complementary goods. b. purchase more substitute goods. c. purchase fewer substitute goods. d. have more real income.