Suppose there is an unexpected increase in real interest rates. Using the AD/AS model, describe the effects of this policy in the long run and the short run, assuming everything else equal
In the short run, aggregate demand would fall, causing a reduction in prices and output. In time, the below-normal output would put downward pressure on resource prices and wages, causing short-run aggregate supply to increase. This would cause prices to fall and output to increase.
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If banks receive a greater amount of reserves and do not hold all of these reserves as excess reserves, the money supply expands
Indicate whether the statement is true or false
In a market-oriented economic model:
a. no government agency or guiding intelligence oversees the set of responses and interconnections that result from a change in price. b. no government agency or guiding intelligence oversees the set of responses and interconnections that result from a change in demand. c. a government agency or guiding intelligence oversees the set of responses and interconnections that result from a change in price. d. a government agency or guiding intelligence oversees the set of responses and interconnections that result from a change in demand.
Fundamental forecasting uses trends in economic variables to predict future rates.
a. true b. false
A uniform tax according to the physical quantities of pollution may not be the appropriate way to correct for an externality because
A) it places a unfair burden on small producers. B) a uniform tax can only account for social costs and not external costs. C) a firm will reduce production. D) it may not adequately account for economic damages.