Suppose real money demand is L = 0.8 Y - 100,000 (r + ?e).If the nominal money supply is 12,000, real output is 15,000, the real interest rate is .02, and the expected inflation rate is .01, then the price level is
A. 4/3.
B. 3/4.
C. 1.
D. 3.
Answer: A
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The government plays no role in a market-based economy
Indicate whether the statement is true or false
Under which of the following scenarios does an increase in the wage tax cause a drop in employment but no deadweight loss?
A. When the wealth effect for workers is larger than the substitution effect. B. When the wealth effect for workers is smaller than the substitution effect. C. When the wealth effect for workers is equal to the substitution effect. D. It is possible under any of these scenarios. E. There is no scenario under which this is possible.
If inflation is less than expected, then the unemployment rate is
a. greater than the natural rate. In the long run the short-run Phillips curve will shift right. b. greater than the natural rate. In the long run the short-run Phillips curve will shift left. c. less than the natural rate. In the long run the short-run Phillips curve will shift right. d. less than the natural rate. In the long run the short-run Phillips curve will shift left.
Suppose that consumer spending is expected to decrease in the near future. If output is at potential output, which of the following policies is most appropriate according to the AS/AD model?
A. A reduction in government spending B. An increase in taxes C. An increase in government spending D. No change in taxes or government spending