If nominal GDP increases by 2 percent and the price level drops by 1 percent, real GDP:
A. increases by 3 percent.
B. increases by 1 percent.
C. decreases by 1 percent.
D. decreases by 3 percent.
Answer: A
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With the self-correcting mechanism, if a negative demand shock occurs,
a. a decrease in wage rates will lead to a decrease in the price level so that the economy returns to full employment b. the price level will increase, causing equilibrium GDP to return to its original level c. the wage rate will eventually increase, restoring GDP to its full-employment level d. the price level will remain constant e. there will be no effect in the long run
In the classical model, we assume there is no ongoing inflation, so there is no need to distinguish between the nominal interest rate and the real interest rate
a. True b. False
An increase in the value of the dollar will ___ agg demand
Fill in the blank(s) with the appropriate word(s).
The controller of a monopoly sets the price of goods by charging _____.
(A) As much as possible, regardless of the amount sold. (B) Less than the company would charge if it did not have a monopoly. (C) The price at which the profit is maximized. (D) Only a small amount over cost.