How do New Keynesians use the existence of long-term nominal contracts to help explain the failure of prices to adjust in the short run?
What will be an ideal response?
When contracts of this type exist, firms are not able to change prices easily in response to changes in demand because their costs of production are fixed. Although many such long-term arrangements exist in the economy, not all contracts come up for renewal during a particular period because they are overlapping or staggered. So, only some wages and prices can be adjusted in the current period.
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When interest rates rise,
A) borrowing costs decline, and total planned real expenditures decline. B) borrowing costs increase and total planned real expenditures increase. C) borrowing costs decline, and total planned real expenditures increase. D) borrowing costs increase, and total planned real expenditures decline.
Which of the following statements is true?
A) An excess demand for credit exerts an upward pressure on the real rate of interest. B) At rates of interest below the equilibrium rate, there is an excess supply of credit. C) An excess supply of credit exerts an upward pressure on the real rate of interest. D) At rates of interest above the equilibrium rate, there is an excess demand for credit.
An example of moral hazard is
a. people drive as carefully in icy conditions with antilock brakes as without b. people drive as safely with more airbags as without c. football players avoid 'spearing' with their heads even with safer helmets d. people fail to read the medicine warnings more often when self-medicating versus with a doctor's prescription
The unemployment rate was increasing from 6 percent to 7 percent could be interpreted as an increase in the natural rate of
a. inflation. b. unemployment. c. economic growth. d. aggregate supply.