Workers and firms are currently expecting the price level to increase from 110 to 114. The Federal Reserve then announces that it will be reducing the growth rate of the money supply
If the Fed's announcement is credible, and firms and workers have rational expectations, describe how the expectations of firms and workers will be affected and how the change in expectations will affect the unemployment rate.
Workers and firms were expecting an inflation rate of 3.6%, but when the Fed announces it will be reducing the money supply, workers and firms rationally expect this will reduce inflation. Based on the expectation that inflation will fall, workers are willing to accept lower nominal wages and firms will pay lower nominal wages so that the real wage is unchanged. If the real wage is unchanged, the level of employment remains the same, and there is no impact on the unemployment rate.
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Suppose that for a given firm, the increase in output resulting from the last worker hired is less than the increase in output of the previous worker hired. This is an example of
A) increasing return. B) capital deepening. C) diminishing returns. D) constant returns.
If Korea imposes an import quota on U.S. oranges, losers include Korean _______ of oranges and U.S. ______ of oranges
A. consumers; consumers B. consumers; producers C. producers; consumers D. producers; producers
The typical shape of an isoquant is
A) linear and upward sloping. B) convex towards the origin. C) concave towards the origin. D) linear and downward sloping.
Suppose real GDP is $12.1 trillion and potential GDP is $12.6 trillion. To move the economy back to potential GDP, Congress should
A) lower taxes by an amount less than $500 billion. B) lower taxes by $500 billion. C) raise government purchases by more than $500 billion. D) lower government purchases by $500 billion. E) raise government purchases by $500 billion.