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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Assume that both the demand curve and the supply curve for MP3 players shift to the right but the demand curve shifts more than the supply curve. As a result
A) the equilibrium price of MP3 players will decrease; the equilibrium quantity may increase or decrease. B) the equilibrium price of MP3 players will increase; the equilibrium quantity may increase or decrease. C) the equilibrium price of MP3 players may increase or decrease; the equilibrium quantity will increase. D) both the equilibrium price and quantity of MP3 players will increase.
Marginal productivity theory implies that in a perfectly competitive market economy, a worker will receive income
A) that is less than the value of her marginal contribution to the production process. B) equal to the value of her marginal contribution to the production process. C) that is greater than the value of her marginal contribution to the production process. D) greater than, less than, or equal to the value of her marginal contribution to the production process, depending on her ability to negotiate with employers.
Once monetary policy is dedicated to controlling the level of nominal GDP, then fiscal policy can be used to
A) choose the overall level of interest rates, with a high budget surplus implying a high level of interest rates. B) choose the overall level of interest rates, with a high budget deficit implying a high level of interest rates. C) control the level of inflation, with a high budget surplus implying a faster rate of inflation. D) control the level of inflation, with a high budget deficit implying a faster rate of inflation.
Which of the following best defines foreign exchange?
a. a trade between two countries b. the market where exporting and importing activities take place c. the price of a currency relative to another currency d. the currency of another country used for trading e. the dollars that the United States uses to buy goods from other countries