Refer to Figure 14.2. A movement from point b to point c could be caused by a simultaneous ________ and ________.
A. increase in the money supply; increase in the price of oil
B. decrease in taxes; decrease in the price of oil
C. increase in taxes; decrease in government spending
D. increase in the price of oil; massive crop failure
Answer: A
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Suppose expected inflation in the economy is 5%. Banks set nominal interest rates so they'll earn a 2% expected real return. Employers set nominal wages based on a 2% expected real wage increase
Suppose the nominal interest rate and nominal wages are determined this way, but actual inflation turns out to differ from the expected inflation rate. Calculate the actual real interest rate and the percent increase in the real wage for each of the following actual inflation rates: a) 2%; b) 5%; c) 10%.
Raising taxes as an element of discretionary fiscal policy is intended to reduce aggregate demand, but it can also reduce aggregate supply if
a. the higher taxes lead workers to seek out a second job. b. the higher taxes cause workers to work less. c. the government purchases goods with the additional revenue. d. the government uses the additional revenue to retire some of the federal debt. e. the higher taxes cause people to save less.
According to the text, a rise in the interest rate
A. may either raise or lower consumer savings. B. will raise consumer savings. C. will lower consumer savings. D. will cause the rental cost of capital to decrease.
The stock of capital in the United States can grow only if
A. GDP minus depreciation is negative. B. The production possibilities curve shifts inward toward the origin. C. Depreciation is positive. D. Gross investment minus depreciation is positive.