Refer to Exhibit 16-11. Assume that the starting point is point 1. Suppose that there is a supply-side change capable of reducing the capacity of the economy to produce. Which of the following best goes with the diagram shown?
A) New classical theory with policy incorrectly anticipated, bias downward
B) New classical theory with policy incorrectly anticipated, bias upward
C) Real business cycle theory
D) New classical theory with policy unanticipated
E) Policy ineffectiveness proposition (PIP)
Answer : C) Real business cycle theory
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Monetarists argue that stability in the economy is maintained by fluctuations in
A) velocity. B) money demand. C) money supply. D) the price level.
A perfectly inelastic supply curve is
A) an upward sloping straight line that intersects the origin. B) horizontal. C) vertical. D) downward sloping.
In a debate on the state of the economy Senator A pointed out that the price of clothing, fruits, and computers had decreased slightly over the last year, while Senator B stated that the inflation rate had increased over the last year. In this example, aggregate data is being used by:
A. Senator B. B. neither senators. C. both senators. D. Senator A.
A nominal anchor is a commitment to keep nominal variables within limits, often tied to an external value or price. When nations do not incorporate such discipline into their monetary policy, exchange rates are often:
a. irrelevant to economic activity. b. extremely volatile, because traders consider monetary shocks to be permanent. c. less dependent on monetary variables. d. determined by political considerations rather than economic fundamentals.