If the CPI equaled 1.00 in 1995 and 1.65 in 2005 and a typical household's income equaled $35,000 in 1995 and $40,000 in 2005, then between 1995 and 2005, real household income:
A. was constant.
B. increased.
C. may have either increased or decreased.
D. decreased.
Answer: D
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The self-correcting tendency of the economy means that falling inflation eventually eliminates:
A. exogenous spending. B. recessionary gaps. C. expansionary gaps. D. unemployment.
The financing of a government deficit increases interest rates and, as a result, reduces investment spending. This statement describes:
A. the supply-side effects of fiscal policy. B. built-in stability. C. the crowding-out effect. D. the net export effect.
Expansionary monetary policy ________
A) lowers tax rates B) increases interest rates C) increases tax rates D) lowers interest rates
The natural rate of unemployment is that rate
A) below which the economy can never be. B) corresponding to full-employment. C) corresponding to a constant rate of inflation. D) which is zero.