The self-correcting property of the economy means that output gaps are eventually eliminated by:
A. increasing or decreasing potential output.
B. government policy.
C. decreasing inflation only.
D. increasing or decreasing inflation.
Answer: D
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The largest component of consumption spending is spending on nondurable goods
Indicate whether the statement is true or false
Fighting inflation by slowing the growth of aggregate demand is
a. endorsed by most politicians. b. a convenient way to reduce inflation. c. unpopular with politicians. d. always easily accepted by firms and workers.
International capital flows in an open economy have the effect of
A. increasing the power of fiscal policy. B. reducing the power of fiscal policy. C. reducing the power of fiscal policy in an expansion, and increasing it in a contraction. D. increasing the power of fiscal policy in an expansion, and reducing it in a contraction.
Gertie saw a pair of jeans that she was willing to buy for $35. The price tag, though, said they were $29.99. Therefore:
A. Gertie should buy the jeans because the price is more than her reservation price. B. Gertie should not buy the jeans because they will be of lower quality than she expected. C. Gertie should buy the jeans because the price is less than her reservation price. D. Gertie should not buy the jeans because the price is not equal to her reservation price.