Assume the Fed initiates an expansionary monetary policy that is correctly anticipated by economic agents in the economy. According to the rational expectation hypothesis, the result is
A. an increased price level, but no change in real Gross Domestic Product (GDP) in the long run.
B. an increased price level in the short run, but no effect on price level in the long run.
C. increased real Gross Domestic Product (GDP) and increased employment in the long run.
D. decreased real Gross Domestic Product (GDP) in the short run, but increased real Gross Domestic Product (GDP) in the long run.
Answer: A
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Which of the following examples identifies the income effect of a price change?
A) When Gary's income doubles his wine consumption doubles, the price of wine remaining unchanged. B) When the price of diesel falls, consumers start purchasing more petroleum-powered vehicles. C) While purchasing shirts and jeans, when the price of a pair of jeans falls, Jack purchases more of both jeans and shirts. D) While purchasing pens and pencils, when the price of pens falls, Jill purchases more pens and fewer pencils.
The City Council of Happy Village is thinking about imposing rent controls. If they put rent controls in place, which constituency are they trying to please?
A) landlords B) all taxpayers C) existing tenants D) all voters
The reasons why a competitive firm's short-run supply curve is upward sloping are
A) the law of diminishing marginal returns and profit maximization. B) constant returns to scale and profit maximization. C) decreasing returns to scale and profit maximization. D) Both B and C.
If a firm hires lazy employees,
A) it must pay them differently or hard-working employees will engage in moral hazard. B) it must pay them more or hard-working employees will engage in moral hazard. C) it must fire them before their laziness spreads to hard-working employees. D) the lazy employees make hard-working employees look good.