What is the modern view of the Phillips curve?
What will be an ideal response?
The modern view is that there is no trade-off between inflation and unemployment except in the short run. People can be surprised and unemployment can go down if the government pursues expansionary monetary or fiscal policy. However, once people learn the true state of affairs, they will adjust their behavior and the natural rate of unemployment will prevail. The price level will be higher though.
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A period of very high and accelerating inflation is known as
A) deflation. B) disinflation. C) hyperinflation. D) nuclear inflation.
Within the Keynesian model, the multiplier effect tends to
a. smooth out the up- and down- swings of the business cycle. b. promote price stability. c. magnify small changes in spending into much larger changes in output and employment. d. reduce the impact of an increase in investment on output and employment.
In a market, the marginal buyer is the buyer
a. whose willingness to pay is higher than that of all other buyers and potential buyers. b. whose willingness to pay is lower than that of all other buyers and potential buyers. c. who is willing to buy exactly one unit of the good. d. who would be the first to leave the market if the price were any higher.
What is the short-run effect of increased deficit spending on an economy experiencing a recessionary gap?
A. Aggregate demand will increase, creating an inflationary gap. B. Aggregate demand decreases, and the gap widens. C. Aggregate supply increases, closing the gap. D. Aggregate demand increases, and the gap closes.