The economy is in long-run equilibrium when there is an incorrectly anticipated increase in aggregate demand brought about by expansionary monetary policy. Specifically, aggregate demand increases by less than people anticipate (bias upward). According to new classical theory, the price level will __________ and Real GDP will __________ in the short run. In the long run, the price level will be
__________ than it was before aggregate demand increased.
A) rise; rise; lower
B) rise; fall; higher
C) rise; fall; higher
D) fall; rise; lower
E) rise; rise; higher
C
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The Fed sells $300 million U.S. government securities to commercial banks. This action leads to ________ in Fed assets and ________ in Fed liabilities
A) a $300 million increase; a $300 million increase B) a $300 million increase; a $300 million decrease C) no change; no change D) a $300 million decrease; a $300 million decrease in E) a $300 million decrease; a $300 million increase
The concept of economic rent applies to
A. all wage and salary earners. B. no wage or salary earners. C. only owners of real estate. D. people with rare valuable skills.
When the economy is in macroequilibrium, unintended investment
a. is positive b. is negative c. equals saving d. is zero e. equals intended investment
Why might an expansion in government spending increase the severity of the coordination problem during a recession?
a. Increases in government spending will not affect the composition of aggregate demand. b. Congress is unlikely to approve increases in government spending during a recession. c. Spending increases will be driven by political considerations and will often flow into areas where resources are already fully employed. d. Government spending can be counted on to flow toward high productivity projects.