If the money supply is held constant, an increase in the velocity of money would cause the AD curve to
A. shift inward.
B. shift outward.
C. become steeper.
D. become flatter.
Answer: B. shift outward.
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People know that the inflation rate will increase from 3 percent to 5 percent. As a result
A) the nominal interest rate falls by 2 percentage points. B) the nominal interest rate is constant. C) the nominal interest rate rises by 2 percentage points. D) the real interest rate rises by 2 percentage points.
Countercyclical fiscal policy refers to
a. any fiscal policy that cycles between budget surpluses and budget deficits b. the use of taxes and government spending to keep the economy close to potential GDP in the short run c. any fiscal policy that is employed during a business cycle d. the use of open market purchases of bonds to keep the economy close to potential GDP in the short run e. the use of changes in tax rates to keep the economy at potential output in the long run
Assume the government decides to decrease taxes and to finance the expected budget deficit with borrowing in the real credit market. Where and how should you begin your analysis when analyzing the chain reaction of economic interactions?
a. Start the analysis in the real goods market with aggregate demand shifting to the left. b. Start the analysis in the real goods market with aggregate demand shifting to the right. c. Start the analysis in the real goods market with aggregate supply shifting to the left. d. Start the analysis in the real goods market with aggregate supply shifting to the right. e. Start the analysis in the real credit market with demand for real credit shifting to the right.
In a representative democracy, there are
A. elected politicians. B. public employees. C. special interests. D. all of these answer options are correct.