With rational expectations, a policy that would decrease AD would lead to:
a. lower inflation and lower unemployment in the short run if people underestimated the effect of the policy on inflation.
b. lower inflation and higher unemployment in the short run if people underestimated the effect of the policy on inflation.
c. lower inflation and an indeterminate effect on unemployment in the short run, if people's expectations were correct.
d. both (b) and (c).
b
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If bond prices decrease, then the
A. transactions demand for money will decrease. B. interest rate increases. C. interest rate decreases. D. transactions demand for money will increase.
In a market economy, goods are allocated to
a. all potential uses. b. all citizens on an equal basis. c. citizens with political power. d. citizens with both the desire and the willingness to pay for the goods.
Air pollution from burning fossil fuels causes damages to crops and public health. This is an example of
a. a market failure caused by an externality. b. a market failure caused by market power. c. a market failure caused by equality. d. There is no market failure in this case.
The difference between the price of electronic equipment in a retail store and on the Internet partly reflects:
A. the value of personal attention and support at a retail store. B. the extent to which middlemen drive the price up for extra profit. C. excessive markup. D. the lack of competition between brick and mortar stores and online stores.