Given a downward-sloping aggregate demand curve, if short-run aggregate supply increases, real GDP must increase and nominal GDP must fall.
a. true
b. false
a. true
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The self-correcting property of the economy means that output gaps are eventually eliminated by:
A. increasing or decreasing potential output. B. government policy. C. decreasing inflation only. D. increasing or decreasing inflation.
A decreased government deficit created by a lump-sum tax increase will increase national saving if
A) the value of government bonds outstanding grows slower than the public's wealth. B) it causes consumption to fall. C) the government runs a primary surplus as a result. D) the real interest rate is less than the growth rate of real GNP.
The long run result of the government responding to a negative supply side shock with increased spending will be a:
A. faster recovery, but it will cause even greater inflation. B. slower recovery, if they misjudge their own spending. C. faster recovery at a lower price level than allowing short-run aggregate supply to adjust on its own. D. slower recovery, but it will cause inflation to be lower than if they did nothing.
In the long run, if the Fed lowers the inflation rate and holds it at that new rate,
a. a zero inflation rate will be reached b. a recession will not occur c. inflationary expectations will fall d. the natural rate of unemployment will rise e. structural unemployment will start to decrease