When there is a recessionary gap, inflation will ________, in response to which the Federal Reserve will ________ real interest rates, and output will ________.
A. decline; lower; decline
B. increase; raise; decline
C. decline; lower; expand
D. decline; raise; decline
Answer: C
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The function that banks perform by obtaining funds from households, businesses, and governments and lending these funds to other households, businesses, and governments is known as
A) fiscal intermediation. B) financial intermediation. C) lending intermediation. D) liquidity intermediation.
Assume there is an increase in demand in a perfectly competitive market that was initially in long-run equilibrium. Which of the following statements is false?
A) Consumers have shown that they now consider the good to be more valuable. B) In the short run, profits will be lower than normal. C) Resources from other industries will be attracted into the market. D) Over time, the market supply curve will shift right.
Refer to Figure 16.1. An increase in the corporate tax rate is best represented by a movement from
A) point A to point B. B) point B to point A. C) point A to point C. D) point C to point A.
A backward-bending labor supply curve implies that
A) the substitution effect dominates the income effect at higher wage rates but not at lower wage rates. B) the substitution effect dominates the income effect at lower wage rates but not at higher wage rates. C) leisure is an inferior good. D) workers are irrational.