If nominal GDP increased from $4 billion to $5 billion while real GDP increased from $3 billion to $4 billion, it follows that:
A. real output rose and price level fell.
B. the price level and real output increased at the same rate.
C. the price level increased at a faster rate than real output.
D. the price level rose by 25 percent.
Answer: A
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Friedman measured "permanent" income by assuming that people adjusted their consumption on the basis of
A) an "error learning" process with respect to their expected income. B) an adaptive expectation formation of their expected income. C) transitory income and the level of income expected over a period of years in the future. D) All of the above.
A student ranks 4 candy bars in the following order: 1) Twix, 2) Snickers, 3) Milky Way, and 4) Almond Joy. Given the choice of one candy bar the student picks a Twix bar. What is the opportunity cost of that choice?
A. The money that was spent on the candy bar B. Snickers C. Almond Joy D. Snickers, Milky Way, and Almond Joy
An increase in expected inflation is likely to cause
A. no change in the demand for real balances. B. no change in the demand for real balances only if the income elasticity of real money demand is zero. C. a decline in the demand for real balances. D. an increase in the demand for real balances.
The following statements about the "sunk cost fallacy" are true, except:
A. It's the tendency to drag past costs into current marginal cost-benefit calculations B. It comes from a desire to "get one's money's worth" out of a past expenditure C. It refers to the fact that average fixed costs are not a major part of production costs D. It could lead one to "throw good money after bad"