The economy pictured in the figure below has a(n) ________ gap with a short-run equilibrium combination of inflation and output indicated by point ________. 
A. recessionary; B
B. recessionary; C
C. recessionary; A
D. expansionary; A
Answer: C
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Refer to Scenario 2.2. Under what circumstances will the equilibrium level of output of dental care remain the same?
A) If supply shifts more than demand. B) If demand shifts more than supply. C) If both demand and supply shift by the same magnitude. D) If supply and demand shift in the same direction.
The fact that more women have chosen to work as real wages rise is evidence that, for them:
a. leisure is an inferior good. b. income and substitution effects of higher real wages work in the same direction. c. income and substitution effects of higher real wages may work in opposite directions. d. income and substitution effects may work in opposite directions but that the substitution effect is stronger.
As the housing bubble collapsed, and the value of homes decreased, consumers’ loss of wealth led to:
A. decreased consumption, which increased prices, which increased the costs of production, leading to more job loss. B. decreased consumption, which further depressed prices, which reduced output further, leading to more job loss. C. increased consumption, which increased prices, which increased the costs of production, leading to more job loss. D. decreased consumption, which further depressed prices, which decreased the amount people had to spend, and increased savings.
Describe three arguments of why some economists object to the predictions of the rational expectations theory and do not subscribe to the conclusions of this approach