According to classical economists,
a. prices are rigid
b. both V and Q are variable
c. changes in M cause changes in V
d. the equation of exchange becomes a theory in which the quantity of money explains liquidity
e. the velocity of money is constant
E
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Answer the following statement(s) true (T) or false (F)
1. People have rational expectations when their predictions are correct more often than not. 2. Even when econometric equations predict very well, they can be entirely useless as guides to policy. 3. The standard deviation of a portfolio is exactly equal to the average standard deviations of the individual stocks. 4. A risk-averse individual always prefers the basket with the highest standard deviation when choosing among baskets with the same expected value. 5. Uninsurable risks is one reason why fair-odds insurance is not always available.
If the MPC were to increase from 0.75 to 0.8, then the spending multiplier would:
A. increase from 4 to 5. B. decrease from 5 to 4. C. increase from 0.2 to 0.25. D. decrease from 1.25 to 1.2.
The idea behind the "Big Mac index" is a test of
a. interest rate parity theory. b. long-run equilibrium theory. c. purchasing power parity theory. d. exchange rate equalization theory.
Which of the following actions would be most likely to increase economic growth in a developing country?
a. establishment of a command economy that can set definite goals for the future and implement them b. an increase in foreign aid to finance spending on infrastructure such as roads and bridges c. development of a legal system that fairly protects people and their property d. construction of new colleges to expand higher education