According to the Keynesian IS-LM model, what is the effect of each of the following on output, the real interest rate, employment, and the price level? Distinguish between the short run and the long run.(a)Expected inflation decreases.(b)Labor supply increases due to a change in demographics.(c)The future marginal product of capital increases.
What will be an ideal response?
| (a) | Short run: Y and N decrease; r rises; P is unchanged. Long run: P falls; Y, r, and N are |
| (b) | Nothing happens to any of the variables. |
| (c) | Short run: Y, r, and N rise; P is unchanged. Long run: r and P rise; Y and N are unchanged. |
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Consumption smoothing refers to
A) the tendency of all consumers to choose the same amount of current consumption. B) the tendency of consumers to seek a consumption path over time that is smoother than income. C) the tendency of consumers to seek an income path over time that is smoother than consumption. D) consumer's concerns about going heavily into debt.
Policies that make it more difficult to fire an employee likely lead to:
A. greater unemployment, because employers will be more hesitant to hire someone. B. greater unemployment, because employees will quit more often. C. less unemployment, because everyone will value their job more. D. less unemployment, because employers will not be able to fire as many people.
The shape of the supply curve of labor may be described as _________________.
Fill in the blank(s) with the appropriate word(s).
The price charged by a monopolist is socially inefficient because the price
A) exceeds the true marginal cost of the resources used. B) is less than the opportunity cost of the resources used. C) puts the monopolist into a higher tax bracket. D) is too low.