In the above figure, start with the economy in equilibrium at point A. Then an unanticipated reduction in aggregate demand triggers a shift from AD1 to AD2. In the short run, this would cause
A) the price level to move from P1 to P2, but real Gross Domestic Product (GDP) would stay at Y1.
B) the price level to fall from P1 to P2, real Gross Domestic Product (GDP) to fall from Y1 to Y2, and the rate of unemployment to increase.
C) the price level to fall by some amount less than P1 but greater than P2, and the rate of unemployment would decrease.
D) no change in either the price level or real Gross Domestic Product (GDP), but a decrease in unemployment.
B
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From 2004 to 2007, the growth rates of M1 and M2
A) were identical. B) both increased but at different rates. C) both decreased but at different rates. D) moved in opposite directions.
In the Keynesian model, suppose the Fed wants to keep output unchanged. If the IS curve shifts to the left, and the Fed acts to keep output unchanged, then
A) taxes will increase. B) the money supply will decline. C) the real interest rate will decrease. D) taxes will decrease.
Which of the following helps resolve the problem of corporate managers failing to work in the interests of stockholders when corporate ownership is separated from control?
a. A dominant stockholder can fire managers that fail to maximize corporate profit. b. If managers are paid a flat salary they will have a strong incentive to maximize corporate profit. c. Dissatisfied stockholders can "fire" the manager and the firm simply by selling their shares in the corporation, lowering the share price and making the firm an attractive takeover target for a reform-minded entrepreneur. d. A dominant stockholder can use discretion in distributing corporate profits among shareholders.
If a doctor knows that an insurance company will pay for most of a patient's bill, the doctor has more of an incentive to require additional medical procedures and tests, even if the patient may not require them. This is an example of
A) moral hazard. B) the principal-agent problem. C) asymmetric information. D) adverse selection.