Starting from long-run equilibrium, a large decrease in government purchases will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. expansionary; lower; potential
B. expansionary; higher; potential
C. recessionary; lower; potential
D. recessionary; lower; lower
Answer: C
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Holding everything else constant, the absolute value of the price elasticity of demand for Saucony tennis shoes is ________ the price elasticity of demand for tennis shoes in general
A) greater than B) twice as great as C) less than D) equal to
Based on the theory of the expectations-augmented Phillips curve, if the expected inflation rate is 2%, the short-run Phillips curve will
A) have a kink at an inflation rate of 2%. B) be the same as the long-run Phillips curve. C) intersect the long-run Phillips curve at the natural unemployment rate, when the inflation rate is 2%. D) be horizontal at an expected inflation rate of 2%.
Monetarists assume that there is a powerful direct link between aggregate demand and
A) velocity. B) real money balances. C) wage rates. D) interest rates.
In the Keynesian model with a fixed price level and a fixed money wage, an increase in the money supply will cause
a. output to fall and interest rates to fall. b. output to remain unchanged. c. output to rise and the price level to fall. d. output to rise and interest rates to fall.