To achieve long-run equilibrium in an economy with a recessionary gap, without the use of stabilization policy, the inflation rate must:
A. not change.
B. increase.
C. decrease.
D. either increase or decrease depending on the relative shifts of AD and AS.
Answer: C
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The natural unemployment rate is equivalent to all of the following EXCEPT the unemployment rate when:
A. the unemployment rate is zero. B. there is no output gap. C. cyclical unemployment is zero. D. there is only frictional and structural unemployment.
Suppose the firms in a monopolistically competitive market are incurring economic losses. What will happen to move the market to its long-run equilibrium?
A) More close substitutes will appear in the market until economic profits are zero. B) The firms that dropped out of the market will reenter once the level of economic losses is zero. C) Firms will continue to exit the market until economic losses are equal to zero. D) The demand functions of all the firms remaining in the market will become relatively more elastic.
Monopoly power results from the ability to
A) set price equal to marginal cost. B) equate marginal cost to marginal revenue. C) set price above average variable cost. D) set price above marginal cost.
Appendix: Common value auctions with open bidding necessarily entail
a. asymmetric information b. ascending prices c. more than two bidders d. amendment of bids e. sealed final offers.