By the time Paul Volcker took office as the new Federal Reserve chairman in 1979, the inflation rate exceeded 10%. By 1982 the unemployment rate soared to 9.7% and inflation was cut to 6.2%
By the end of 1986 the unemployment rate was brought down to 7% and the inflation rate was brought further down to 1.9%. Which of the following is an appropriate description of the mechanism behind the Volcker Disinflation? A) The AD curve shifted right due to the autonomous tightening of monetary policy which explains the lowering of the unemployment rate between 1982 and 1986.
B) With the Federal Reserve raising interest rates, the AD curve shifted to the left lowering the equilibrium level of inflation but inducing a negative output gap, which explains the lower inflation rate between 1979 and 1982 at the cost of a higher unemployment rate over the same period.
C) The LRAS curve shifted left due to the tightening of monetary policy generating a positive output gap or a negative unemployment gap which explains the lowering of the unemployment rate between 1982 and 1986.
D) all of the above
E) none of the above
B
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Your classmates from the University of Chicago are planning to go to Miami for spring break, and you are undecided about whether you should go with them. The round-trip airfares are $600, but you have a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for the vacation are exactly $900. The most you would be willing to pay for the trip is $1400. Your only alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-trip airfares are $450. Should you use the frequent flyer coupon to go to Miami?
A. Yes, your benefit is equal to your cost. B. Yes, your benefit is more than your cost. C. No, your benefit is less than your cost. D. No, because there are no benefits in the trip.
Suppose you are a famous international economic advisor. You have been asked to asses the possibilities for growth in an African country. It is a country abundant in labor and some natural resources. The capital-to-labor ratio is low
It has a free market economy. You have found that this country does not have a very strong and healthy banking system, however the political system is stable and the government does a good job protecting property rights. Assess this country's prospects for growth. Recommend two things that would enhance the country's growth.
The main effect of a decrease in the stock of capital is a(n):
a. rightward shift of the short-run aggregate supply curve. b. rightward shift of the aggregate demand curve c. leftward shift of the long-run aggregate supply curve. d. leftward shift of the aggregate demand curve. e. increase in the price and output levels.
The long-run effect of an increase in household consumption is to raise
a. both real output and the price level. b. real output and lower the price level. c. real output and leave the price level unchanged. d. the price level and leave real output unchanged.