If the Fed's policy reaction function equals r = .02 + p, where r is the real interest rate, p is the inflation rate. If the real rate of interest is set at 5%, then the rate of inflation must be:
A. 4%
B. 2%.
C. 1%.
D. 3%.
Answer: D
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The short-run Phillips curve shows a relationship between the
A) unemployment rate and the interest rate. B) inflation rate and the interest rate. C) price level and real GDP. D) inflation rate and real GDP. E) inflation rate and the unemployment rate.
In the figure above, the curve labeled "X" can be a
A) monopoly's demand curve. B) monopoly's marginal revenue curve. C) perfectly competitive firm's demand curve. D) perfectly competitive firm's marginal revenue curve.
Which of the following statements regarding a firm's long-run average total cost (LRATC) curve and its short-run average total cost (SRATC) curve is true?
A) The LRATC shows the lowest cost at which a firm is able to produce a given level of output when no inputs are fixed. B) The contribution of average fixed cost to LRATC is greater than its contribution to SRATC. C) The shape of the LRATC is affected by the law of diminishing returns. D) The SRATC, but not the LRATC, can be used by a firm's managers for planning.
In the IS-LM model, changes in taxes initially affect planned expenditures through
A. Consumption. B. Investment. C. Government spending. D. the interest rate