In the short-run Keynesian model where the marginal propensity to consume is 0.5, to offset an expansionary gap resulting from a $1 billion increase in autonomous consumption, government purchases must be:
A. decreased by $2 billion.
B. decreased by $1 billion.
C. decreased by $0.5 billion.
D. increased by $1 billion.
Answer: B
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Which of the following headlines would be more closely related to what macroeconomists study than what microeconomists study?
A) The United Auto Workers sign a contract raising wages and benefits 7% over the next 3 years. B) Real GDP grows by 2.3% in the second quarter. C) Avocado prices rise due to a late frost in California. D) Airlines raise ticket prices in response to rising fuel costs.
When one country can produce a good more efficiently than another country:
A. that country should produce that good and be the sole "winner" of trade. B. that country can specialize in that good and choose only to export goods. C. both can specialize in the industry in which they have comparative advantage and experience mutual gains. D. that country has no basis for trading with another nation.
In the short run, the price charged by a monopolistically competitive firm attempting to maximize profits:
A. must be less than ATC. B. must be more than ATC. C. may be either equal to ATC, less than ATC, or more than ATC. D. must be equal to ATC.
Suppose there was an unexpected increase in aggregate demand. We would expect to observe
A. a decrease in aggregate demand. B. frictional unemployment to increase. C. the duration of unemployment and the amount of unemployment to decrease. D. higher wages, with the duration of unemployment and the amount of unemployment unchanged.