If firms and workers could predict the future price level exactly, the short-run aggregate supply curve would be
A) upward sloping.
B) downward sloping.
C) horizontal.
D) vertical.
Answer: D
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The base year is the year
A) in which prices are unstable. B) in which prices are lowest. C) in which prices are highest. D) that serves as a reference point or benchmark. E) in which nominal output is largest.
In the ________, the perfectly competitive firm will react to profits by __________________________.
a. short run; increasing the quality of products b. long run; tailoring their quality controls c. short run; reducing its labor inputs d. long run; increasing its production
The CPI is biased because it
A) takes into account the changes in product quality. B) takes into account the changes in technology. C) does not always take into account the changes in product quality. D) accurately measures the cost of living but not the cost of producing. E) does not include services.
Using the Taylor rule, if the current inflation rate equals the target inflation rate and real GDP is greater than potential GDP, then the federal funds target rate ________ the sum of the current inflation rate plus the real equilibrium federal
funds rate. A) will be the same as B) will be less than C) will be greater than D) may be greater than or less than