An outward shift of the production possibilities curve demonstrates
A. a recession.
B. economic growth.
C. a cyclical shock.
D. an increased rate of inflation.
Answer: B
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A difficulty faced by policymakers who wish to use the unemployment rate as a guide to whether the economy is weak or strong is that
A) the natural rate of unemployment is hard to measure. B) the natural rate of unemployment almost never changes. C) policymakers must use data on output to tell whether the unemployment rate is too high or too low. D) the impact of policy on the economy is subject to long and variable lags.
The principal-agent view of Fed motivation predicts that the Fed acts
A) to promote the interests of the general public. B) to promote the interests of the Fed's principal—the President of the United States. C) in order to increase its power, influence, and prestige. D) in order to make sure its agents—commercial banks—carry out its wishes.
A vocal minority of economists, believers in the theory of rational expectations, insist that
a. the Phillips curve is downward sloping even in the short run. b. the Phillips curve is vertical even in the short run. c. a trade-off exists between inflation and unemployment even in the long run. d. expansionary fiscal and monetary policy can reduce unemployment without creating inflation.