The rational expectations theory indicates that expansionary policy will:
a. stimulate real output in the long run but not in the short run.
b. expand real output and employment if the public quickly anticipates the effects of the expansionary policy.
c. equalize real and nominal interest rates during lengthy periods of inflation.
d. fail to increase employment because individuals will anticipate it and take actions that will offset its impact.
d
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The production possibilities curve illustrates the basic principle that
A. an economy’s capacity to produce increases in proportion to its population. B. if all resources of an economy are in use, more of one good can be produced only if less of another is produced. C. an economy will automatically seek that output at which all of its resources are employed. D. no opportunity cost exists in production.
A government-imposed price floor has what effect on efficiency?
A. Consumer surplus increases. B. There is little dead weight loss. C. Consumer and producer surplus increases. D. Producer surplus increases.
In the liquidity trap, monetary policy
A) has a large impact on interest rates. B) has a small impact on interest rates. C) has no impact on interest rates. D) has a proportionate impact on interest rates.
The price elasticity of demand for labor will be smaller, the
A) smaller is the price elasticity of demand for the final product. B) easier it is to employ substitute inputs in production. C) larger is the proportion of wage costs in the total cost of production. D) longer is the time period under examination.