Suppose that there is a negative aggregate demand shock and the central bank commits to an inflation rate target. If the commitment is credible, then
A) the public's expected inflation will remain unchanged.
B) the short-run aggregate supply curve will rise.
C) over time inflation will fall.
D) all of the above.
E) both A and C.
A
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Starting from long-run equilibrium, a decrease in autonomous investment results in ________ output in the short run and ________ output in the long run.
A. lower; potential B. higher; higher C. higher; potential D. lower; higher
Three hundred paper mills compete in the paper market. The total cost of production (in dollars) for each mill is given by the formula TC = 1,000Qmill + (Qmill)2, where Qmill indicates the mills annual production in thousands of tons. The marginal external cost of a mill's production (in dollars) is given by the formula MEC = 200 + 2Qmill. Finally, annual market demand (in thousands of tons) is given by the formula Qd = 200,000 - 100P. What is the efficient quantity?
A. 34,286 B. 131,429 C. 1,200 D. 90,000
Ian views playing Wartcraft and drinking soda as perfect complements (one soda with one hour of playing Wartcraft). Currently, sodas are $1 each and Wartcraft costs $1 per hour. Ian has $12 of income
a. Compute Ian's Compensating Variation if the price of Wartcraft rises to $2. b. Compute Ian's Equivalent Variation if the price of Wartcraft rises to $2. c. Compute Ian's change in Consumer Surplus if the price of Wartcraft rises to $2.
Even when allowed to collude, firms in an oligopoly may choose to cheat on their agreements with the rest of the cartel. Why?