Assume the economy is in equilibrium where real GDP equals potential GDP, and the economy experiences a negative demand shock
Describe what happens in the IS-MP model, and explain what policy the Fed could use to keep the inflation rate from changing?
The negative demand shock shifts the IS curve to the left, decreasing the inflation rate. The Fed would respond by decreasing the real interest rate, shifting the MP curve down, which raises the inflation rate.
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When the economy is operating at full employment, the natural unemployment rate consists of only
A) cyclical unemployment. B) frictional and structural unemployment. C) frictional and cyclical unemployment. D) structural and cyclical unemployment.
Suppose you purchased 500 shares of stock in 2013 for $15 a share, and the price now is $20 a share. If you sell the stock, then your capital gain is
A) $2500. B) $1000. C) $10000. D) indeterminate without knowing the inflation rate.
In monopolistic competition there is/are
A) many sellers who each face a downward-sloping demand curve. B) a few sellers who each face a downward-sloping demand curve. C) only one seller who faces a downward-sloping demand curve. D) many sellers who each face a perfectly elastic demand curve.
What are the simplifications used in this chapter to derive the aggregate expenditures model?
What will be an ideal response?