Use the information below to explain adjustments that move the economy to a long-run equilibrium. Assume that firms and workers have adaptive expectations
The current unemployment rate = 7%.
The natural rate of unemployment = 5.5%.
Last year's inflation rate = 5%.
This year's inflation rate = 4%.
If firms and workers have adaptive expectations, they will expect inflation this year to be the same as last year (5%). Since workers are overestimating the actual rate of inflation, real wages will be rising, leading to an unemployment rate that is above its natural level (7% > 5.5 %). As firms and workers adjust their inflation expectations, real wages will decrease until the economy reaches its natural rate of unemployment.
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If the cross-price elasticity of demand between beer and wine is 0.31, then beer and wine are
A) substitutes. B) complements. C) price-inelastic goods. D) necessities.
The classical and Monetarist models agree that
a. the use of fiscal policy can stabilize output. b. money demand is inherently unstable. c. the public has perfect information about the price level. d. increases in the money supply are the primary cause of inflation. e. none of the above
How much does the money supply change if the reserve requirement rate is 20% and excess reserves are $5 million?
a. $50 million b. $1 million c. $10 million d. $25 million
Monopolists can dictate the price or the quantity of the product they produce, but not both.
Answer the following statement true (T) or false (F)