Suppose the economy starts off producing Natural Real GDP. Next, aggregate demand rises, ceteris paribus. As a result, the price level rises in the short run. In the long run, when the economy has moved back to producing Natural Real GDP, the price level will be
A) higher than it was in short-run equilibrium.
B) lower than it was in short-run equilibrium but higher than it was originally (before aggregate demand increased).
C) lower than it was originally (before aggregate demand increased).
D) equal to what it was originally (before aggregate demand increased).
A
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Before it became illegal, cigarette manufacturers once relied heavily on TV advertising. According to the textbook, when the government banned TV advertising, the cigarette manufacturers:
A. thought their First Amendment rights were being violated. B. supported the ban due to their concern over health effects of smoking. C. benefited because the decision about whether to advertise on TV was a prisoner's dilemma. D. were made worse off because the ban significantly reduced cigarette sales.
The measure of money that best fulfills the medium of exchange function because it is most liquid is:
A. M1. B. M2. C. M3. D. L.
An increase in aggregate demand will tend to cause which of the following?
A. a recessionary gap B. cost-push inflation C. a deflationary gap D. none of these
Refer to the supply and demand graph below. In the graph, line S is the current supply of this product, while line S1 is the optimal supply from the society's perspective. If government corrects this externality problem and shifts production to the
socially optimal level, then the product price will be equal to:
A. 0G
B. 0F
C. 0E
D. 0D