If workers accurately predict the rate of inflation, is there a short-run trade-off between inflation and unemployment, as predicted by the Phillips curve? Why or why not?
What will be an ideal response?
If workers accurately predict the rate of inflation, then they will incorporate wage adjustments into their contracts that will take inflation into account. The result is no change in the real wage, and no change in the unemployment rate, indicating that there is no trade-off between inflation and unemployment. Instead, the Phillips curve would be vertical.
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Paul wins a $500 watch in a sweepstakes and decides to keep it, even though he says he would have preferred to win $500 cash. Knowing Paul's preferences, how can we explain his decision to keep it?
A. Paul has a cognitive bias, and it leads him to value the watch more because he owns it. B. Paul has a cognitive bias; he is ignoring a nonmonetary opportunity cost of already owning the watch. C. Paul's implicit cost of ownership makes him feel as though he should keep the watch. D. All of these are true.
An equation that captures how inputs of production are related to output is called a:
A. consumption function. B. GDP deflator. C. production function. D. saving function
If the world price is below the domestic "no-trade" equilibrium price, then with international trade:
a. the domestic shortage can be eliminated by rationing. b. the domestic surplus can be consumed at home. c. the domestic surplus can be exported to the rest of the world. d. the domestic quantity demanded is equal to that supplied by the world. e. the domestic shortage can be met by foreign imports.
When a firm in a monopolistically competitive market earns zero economic profit, its product price must equal marginal cost
a. True b. False Indicate whether the statement is true or false