One of the justifications of government stabilization policy is that it may
A. increase the fluctuations in inflation and employment.
B. increase the multiplier effect of changes in autonomous spending.
C. increase the volatility of economic variables.
D. reduce the severity of inflation and unemployment.
Answer: D
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The term "price setter" refers to a firm that faces a downward-sloping demand curve and must therefore set the combination of output and price that will maximize the firm's profits
Indicate whether the statement is true or false
An economic hypothesis: a. can be tested using empirical analysis
b. can be tested using normative analysis. c. cannot be tested since it is normative in nature. d. cannot be tested since it is a positive economic statement.
Suppose that the equilibrium interest rate is 8 percent, but the actual interest rate is 5 percent. Very quickly,
a. bond prices fall b. bond prices will rise c. the interest rate will begin to fluctuate until bondholders reduce their demand for money d. the primary bond market will start its adjustment process e. the supply and demand for money will both increase
The entry of new firms into a monopolistically competitive market makes the demand curves for the existing firms more elastic
Indicate whether the statement is true or false