If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 10, and potential output (Y*) equals 9,000, then government purchases must ________ to eliminate any output gap.
A. decrease by 100
B. increase by 1,000
C. decrease by 1,000
D. increase by 100
Answer: A
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The supply of labor curve
A) has a negative slope. B) is independent of the wage rate. C) shows how much labor workers are willing to supply at various real wage rates. D) is usually vertical.
Under current tax law individuals do not pay taxes on health insurance benefits they receive from their employers. As a result,
A) individuals are encouraged to want generous health coverage that reduces their incentives to cut costs. B) the quality of health care provided is less than it would be if benefits were taxed. C) politicians are encouraged to raise income and payroll taxes. D) the federal government spends more than it receives in tax revenue.
According to the segmented markets theory of the term structure
A) bonds of one maturity are close substitutes for bonds of other maturities, therefore, interest rates on bonds of different maturities move together over time. B) the interest rate for each maturity bond is determined by supply and demand for that maturity bond. C) investors' strong preferences for short-term relative to long-term bonds explains why yield curves typically slope downward. D) because of the positive term premium, the yield curve will not be observed to be downward-sloping.
Refer to Figure 10.5. A shift from MP1 to MP3 will occur if
A) investors increase the short-term interest they expect in the future. B) investors increase the term premium they require on long-term bonds. C) the Fed decreases its target for the short-term nominal interest rate. D) the expected inflation rate decreases.