If the government accelerates money supply growth and enlarges the budget deficit to stimulate aggregate demand, the rational expectations hypothesis indicates that decision makers will:
A. ignore the policy until it exerts an observable impact on prices, output, and employment.
B. quickly take steps to adjust their decision making in light of the more expansionary policies.
C. be fooled at the outset but eventually adjust their decision making in accordance with the change in policy.
D. be unaware that this policy change has been implemented until a higher rate of inflation is observed.
Answer: B
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Assume a country is required by law to balance the budget every year. Suppose aggregate demand falls, causing a recession and a budget deficit
To balance the budget, what would the government need to do with the level of government spending and taxes? How would these changes in government spending and taxes affect aggregate demand and the economy?
Which of the following would contribute to a positive trade balance for a country?
A) having tourists visit the country B) importing textiles C) having foreign residents buy the government bonds of the country D) importing financial services
Which of the following is not true about a production possibilities curve? The curve:
a. indicates the combinations of goods and services that can be produced with given technology. b. indicates the efficient production points. c. indicates the non-efficient production points. d. indicates the feasible (attainable) and non-feasible production points. e. indicates which production point will be chosen.
If you deposit $500 into a savings deposit, the immediate effect (do not consider the money multiplier which we will study in the next chapter) is:
a. M1 rises, M2 falls, and the monetary base remains the same. b. M1 falls, M2 remains the same, and the monetary base remains the same. c. M1 rises, M2 rises, and the monetary base remains the same. d. M1, M2, and the monetary base rise. e. M1, M2, and the monetary base fall.