Suppose that rising productivity increases potential output in each period by 4%. What kind of monetary policy would be needed to maintain a zero rate of inflation at full employment?
A. It should keep money supply constant.
B. It should increase money supply by 4% in the first period and thereafter, hold money supply constant.
C. It should increase money supply by 4% per period.
D. It should decrease money supply by 4% each period.
Ans: C. It should increase money supply by 4% per period.
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Which of the following factors might explain why the long-run equilibrium number of firms can in some instances exceed the socially optimal number?
a. The appropriability effect (the increase in consumers surplus following entry is not "appropriated" by entrants). b. The feedback effect (an increase in the number of firms increases the competitiveness of the market). c. The business-stealing effect (entry reduces rival firms' profits, a social loss that entrants do not account for). d. The ratchet effect (the more profits the entrants earn, the more the stockholders expect them to earn in the future).
A monopsony will:
a. hire more workers than a competitive employer. b. pay a higher wage than a competitive employer. c. employ a quantity of labor where the marginal revenue product equals the marginal factor cost. d. all of these.
If an economy moves into a recession, causing that country to produce less than potential GDP, then:
a. automatic stabilizers will cause tax revenue to decrease and government spending to increase. b. automatic stabilizers will cause tax revenue to increase and government spending to decrease. c. tax revenue and government spending will be higher because of automatic stabilizers. d. tax revenue and government spending will be lower because of automatic stabilizers.
Autonomous consumption is NOT influenced by
A. Aggregate household wealth. B. Expectations of future income and wealth. C. Aggregate household debt. D. Disposable income.