A negative shock in aggregate demand will likely result in ________
A) a permanent change in output, if the central bank responds by lowering interest rates
B) no permanent change in the equilibrium inflation rate, unless the central bank responds by lowering interest rates
C) an eventual increase in aggregate supply for any inflation rate, if the central bank responds by lowering interest rates
D) all of the above
E) none of the above
E
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Which of the following is a widely-used and closely-watched forecasting tool concerning the future direction of the macro-economy?
a. the excess reserves of commercial banks b. the Phillips curve c. the index of leading indicators d. the current budget deficit or surplus e. the velocity of the M1 money supply
Which of the following provides the clearest statement of the Ricardian equivalence theorem?
a. Both an increase in government expenditures and a reduction in taxes will provide a substantial stimulus for aggregate demand. b. When additional debt is used to finance a tax cut, the lower taxes and higher interest rates will exert an equivalent impact on aggregate demand. c. The finance of government spending with additional debt is essentially the same thing as finance with higher taxes because the larger debt implies higher taxes in the future. d. A 10 percent reduction in tax rates will reduce tax revenues by 10 percent.
A downward shift in the Fed's reaction function is equivalent to:
A. a decline in the Fed's long-term target for inflation. B. a downward shift of short-run aggregate supply. C. an upward shift of short-run aggregate supply. D. an increase in the Fed's long-term target for inflation.
An In the News article titled "Perceptions of Government Failure" implies that people lack confidence in the government. If this is true, it may be due to persistent examples of
A. Merit goods. B. Market failure. C. Government failure. D. Efficiency.