To achieve long-run equilibrium in an economy with a recessionary gap, without the use of stabilization policy, the inflation rate must:
A. not change.
B. increase.
C. decrease.
D. either increase or decrease depending on the relative shifts of AD and AS.
Answer: C
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Consider an economy where the growth rate of real GDP is 6% and the annual rate of inflation is 2%. If the quantity theory of money holds, the growth rate of money supply in the economy will be:
A) 6%. B) 2%. C) 8%. D) 4%.
People who failed to look for a job are classified as
A. unemployed. B. underemployed. C. out of the labor force. D. part time employed.
Which of the following best satisfies the five prerequisites of money?
a. river-rounded stones b. bananas c. hardwood trees d. bricks e. silver
Suppose that the central bank is required to follow a monetary policy rule to stabilize prices. If the economy starts at long-run equilibrium and then aggregate supply shifts right, the central bank would have to
a. increase the money supply, which causes output to move closer to its long-run equilibrium. b. increase the money supply, which causes output to move farther from long-run equilibrium. c. decrease the money supply, which causes output to move closer to its long-run equilibrium. d. decrease the money supply, which causes output to move farther from long-run equilibrium.