An economy is in long-run equilibrium when output equals potential output. Why is there no long-run equilibrium rate of "potential inflation"?
What will be an ideal response?
Potential output is a real variable determined by the economy's productive resources. When output deviates from potential, the temporary tightening or loosening in labor and other input markets causes upward or downward pressure on prices. Barring inflationary or deflationary spirals, changes in inflation cause output to approach potential output. Changes in output do not cause inflation to remain near or to approach any particular rate. On the contrary, inflation will be driven continually higher or lower as long as an output gap persists, and the economy may reach potential output and stable inflation at any inflation rate.
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Credit rationing and the financial accelerator are responsible, in part, for
A) the significant volatility of gross private investment. B) the significant volatility of real personal consumption. C) smoothing gross private investment during severe recessions. D) smoothing real personal consumption during expansions.
Answer the following statements true (T) or false (F)
1. An increase in the money supply always causes an increase in the price level. 2. The effect of a change in the money supply on economic activity may be offset by a change in velocity. 3. An increase in the velocity of money can have an effect similar to that of an increase in the money supply. 4. A government surplus may trigger a decline in the money supply. 5. If the CPI reads 150, prices have increased 50 percent since the base year.
The law requires that FICA be paid ______.
a. completely by workers b. completely by employers c. completely by the government d. by both workers and employers
Compute the expected return, standard deviation, and value at risk for each of the following investments:Investment (A): Pays $800 three-fourths of the time and a $1,200 loss otherwise.Investment (B): Pays $1,000 loss half of the time and a $1,600 gain otherwise.State which investment will be preferred by each of the following investors, and explain why.(i) a risk-neutral investor(ii) an investor who seeks to avoid the worst-case scenario.(iii) a risk-averse investor.
What will be an ideal response?