According to the classical theory, a contractionary monetary policy ________ the price level and ________ output in the long run.
A. doesn't change; doesn't change
B. decreases; doesn't change
C. decreases; increases
D. increases; increases
Answer: B
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The requirement that certain professionals possess a license in order to work in a particular market has the effect of reducing the supply of those services, which in turn causes:
A) price and the profits of firms in the market to increase. B) price and the profits of firms in the market to decrease. C) price to increase and the profits of firms in the market to decrease. D) price to decrease and the profits of firms in the market to increase.
If a firm's short-run total cost curve lies above its total revenue curve at all output levels, the firm should
a. always shut down in the short run b. always operate in the short run c. operate in the short run if the maximum operating loss is less than its total fixed cost d. operate in the short run if the minimum operating loss is less than its total fixed cost e. operate in the short run if the average operating loss is less than its total fixed cost
An example of nondiscretionary fiscal policy would be
A. an interest rate cut implemented to stimulate consumption. B. a federal jobs program adopted to stimulate consumption. C. a tax cut adopted to stimulate consumption. D. the existence of the progressive federal income tax.
More borrowing by firms in the domestic currency is one way to reduce currency mismatch. What would be the major issue if government insured repayment of the loans at a low cost?
A) There would be lots of new borrowing, and the production sector might not be able to keep pace. B) It would be too expensive. C) There could be a moral hazard problem with excessive risk taking. D) It is likely that no new borrowing would take place—firms need the incentive of tax breaks.