If expectations are adaptive, how will the economy adjust to a new long-run equilibrium in response to contractionary monetary policy? Support your answer with a graph of the Phillips curve
What will be an ideal response?
Contractionary monetary policy reduces the inflation rate. With adaptive expectations, workers and firms will overestimate inflation, resulting in an increase in the real wage and an increase in the unemployment rate (move from A to B on the short-run Phillips curve below). Eventually, workers and firms will adjust to the fact that inflation is lower, shifting the short-run Phillips curve down and reducing the unemployment rate to its natural rate (move from B to C in the graph below).
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The above table has data from the nation of Atlantica. Based on these data, the amount of autonomous consumption is
A) $7.5 trillion. B) $0.5 trillion. C) $6.0 trillion. D) $1.0 trillion. E) $1.5 trillion.
In a perfectly competitive market that is in long-run equilibrium, a rightward shift in the market demand curve results in
A) the price falling in the short run. B) the firms' economic profits falling in the short run. C) firms leaving the industry in the long run. D) none of the events listed above.
Total fixed cost divided by the level of output yields
a. average variable cost per unit b. average fixed costs per unit c. marginal cost per unit d. average total cost per unit e. marginal productivity per unit of fixed resource
Market structure is defined as the:
a. number of firms in each industry. b. similarity of the product sold. c. ease of entry into and exit from the market. d. all of these.