Explain what role money illusion plays in determining the Fed's ability to affect output in the short run
What will be an ideal response?
Money illusion refers to a situation where individuals make mistakes about the distinction between nominal and real magnitudes. For example, individuals might be reluctant to accept a reduction in the nominal wage (that would cause a reduction in the real wage) while at the same time would "accept" a reduction in the real wage when inflation exists and the nominal wage does not change. Money illusion, therefore, might allow a central bank to inflate an economy and, therefore, cause output to rise temporarily.
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In 2001, the percent of total employment in the manufacturing, mining, and construction sector equaled
a. less than 20 percent. b. 30 percent. c. 40 percent. d. 60 percent.
Many economists believe that savings accounts should be added to M1 because they
a. are larger in size than conventional checking accounts. b. pay larger interest than checking accounts. c. can be transferred quickly into checkable accounts. d. are also insured by the federal government.
A union-sponsored television campaign urging U.S. consumers to "Look for the union label" is designed to
A) increase the productivity of union labor. B) increase the derived demand for union labor by shifting consumer preferences in favor of union-made goods. C) raise wages by restricting the supply of union workers. D) remind consumers that if they do not buy union-made goods, unions will strike.
Food and drug labeling is a low-cost way to inform consumers about the contents of foods and the dangers of drugs
Indicate whether the statement is true or false