Monetary policy will be ineffective if
A. Investors have favorable expectations for future sales.
B. Interest rates are sensitive to the quantity of money supplied, and investment spending is sensitive to changes in the interest rate.
C. The demand for money is very sensitive to changes in the interest rate, but the investment demand is not.
D. The demand for money and investment demand are both very sensitive to changes in the interest rate.
Answer: C
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If the marginal rate of technical substitution of labor for capital (MRTSLK) exceeds the relative price of labor in terms of capital (PL/PK), then
a. the firm's long-run average cost curve is rising. b. the firm is producing its output at the least possible cost, but the firm should reduce its output level to increase its profits. c. the firm has increased its output level beyond the point of diminishing marginal returns. d. the firm needs to use less capital and more labor to reach its expansion path.
If economic fluctuations originate on the supply side,
a. there will be no relationship between unemployment and inflation. b. real wage increases will be necessary to eliminate unemployment. c. inflation and unemployment will be negatively related. d. inflation and unemployment will be positively related.
Which of the following goods is rival in consumption and excludable?
a. a fireworks display b. national defense c. a box of sparklers d. a parade
The real-balances effect indicates that:
A. an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending. B. a lower price level will decrease the real value of many financial assets and therefore reduce spending. C. a higher price level will increase the real value of many financial assets and therefore increase spending. D. a higher price level will decrease the real value of many financial assets and therefore reduce spending.