What is the ratchet effect? How does it apply to price level changes in the economy as aggregate demand changes?
What will be an ideal response?
A ratchet effect allows movement in one direction but not movement back. Some economists argue that when aggregate demand increases, there will be an increase in the price level, but when aggregate demand decreases, there is downward price inflexibility that prevents the price level from falling. They note that the price level has not declined since one year in the 1950 despite the fact that there have been many recessions since then. So a higher price level remains even when aggregate demand falls.
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If the Fed follows a high-growth monetary policy, but workers believe that the policy is time inconsistent, then low-wage contracts will be in force and unemployment will decline
a. True b. False Indicate whether the statement is true or false
The Masstricht treaty set the budget ratio to GDP to be ________ in order for countries to qualify to join the Euro area
A) below 3% B) below 4% C) below 5% D) below 6%
All of the following would be potential problems if developing nations around the world emphasized export promotion EXCEPT
A) industrial nations may be unable to absorb the exports of many newly industrializing nations. B) it would be much harder to emphasize exports under the WTO framework if the emphasis in exports requires some kind of subsidies. C) export growth may not add to GDP if it crowds out growth in output of goods for domestic consumption. D) current research has clearly established that there is no causal connection between exports and faster economic growth.
Economic growth will
A. be a movement from inside the productions possibilities curve to the curve itself. B. shift the production possibilities curve inward. C. shift the production possibilities curve outward. D. shift along the production possibilities curve toward the X-axis.