Exhibit 14A-6 Aggregate demand and supply model
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Given the shift of the aggregate demand curve from AD1 to AD2 in Exhibit 14A-6, the real GDP and price level (CPI) in long-run equilibrium will be:
A. $10 billion and 200.
B. $4 billion and 150.
C. $10 billion and 150.
D. $10 billion and 100.
Answer: D
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A bilateral negotiation is a bargaining mechanism in which:
A) a third party or an authority intervenes and decides the prices of the products traded in a market. B) a single seller and a single buyer confront one another with bids and asks. C) multiple buyers bargain with a single seller to determine the trading price. D) multiple sellers bargain with a single buyer to determine the trading price.
Efficiency wages cause unemployment because
A) firms pay wages that are above the market wage, causing the quantity of labor demanded to be greater than the quantity of labor supplied. B) firms pay wages that are above the market wage, causing the quantity of labor demanded to be less than the quantity of labor supplied. C) firms pay wages that are below the market wage, causing the quantity of labor demanded to be less than the quantity of labor supplied. D) firms pay wages that are below the market wage, causing the quantity of labor demanded to be greater than the quantity of labor supplied.
Changes in the interest rate
a. change business spending, but not consumption spending b. shift the consumption function c. cause a movement along the consumption function d. change consumption spending but not business spending e. have no impact on autonomous consumption or business spending
The nominal interest rate on taxable bonds is 8%, while on municipal bonds (which aren't taxable) it is 5%. The expected inflation rate is 3% and the tax rate on interest income is 40%. Calculate the expected real after-tax interest rate on both bonds. Which would be the better investment? Now suppose the actual inflation rate turned out to be 6%. Which bond was the better investment? Would your answer change if inflation had turned out to be 0%?
What will be an ideal response?