The fact that output gaps will not last indefinitely, but will be closed by rising or falling inflation is the economy's:
A. income-expenditure multiplier.
B. self-correcting property.
C. short-run equilibrium property.
D. long-run equilibrium property.
Answer: B
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Cartels are relatively rare because
A. they are illegal in some countries, including the United States. B. members find it difficult to agree on key decisions. C. members frequently have an incentive to cheat on the cartel. D. All of the responses are correct.
A nondiscriminating pure monopolist's demand curve:
A. lies above its marginal revenue curve. B. coincides with its marginal revenue curve. C. lies below its marginal revenue curve. D. is perfectly inelastic.
Explain how expansionary fiscal policy would affect a country's balance of payments and the use of official intervention, given fixed exchange rates and an initial government budget deficit.
What will be an ideal response?
Refer to the diagram, in which Q f is the full-employment output. If aggregate demand curve AD 3 describes the current situation, appropriate fiscal policy would be to:
A. do nothing since the economy appears to be achieving full-employment real output.
B. increase taxes and reduce government spending to shift the aggregate demand curve leftward from AD 3 to AD 2 , assuming downward price flexibility.
C. increase taxes on businesses to shift the aggregate supply curve rightward to reduce the
price level.
D. increase taxes and reduce government spending to shift the aggregate demand curve from
AD 3 to AD 1