Based on the figure below, the economy is initially at point A on the monetary policy reaction function (RF1) and the aggregate demand curve (AD1). The actual rate of inflation is p' and the Federal Reserve's target inflation rate is p*1. 
If the Federal Reserve raises its target inflation rate to p*3, then the Federal Reserve's monetary policy reaction function will ________ and the aggregate demand curve will ________.
A. shift to RF2; shift to AD2
B. shift to RF3: shift to AD3
C. shift to RF3; shift to AD2
D. shift to RF2: shift to AD3
Answer: C
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Suppose Regretta Sigh becomes the lucky winner of a $10,000,000 state lottery jackpot after purchasing a single $1.00 lottery ticket. How does her lucky expenditure affect current GDP?
A) GDP rises by $1.00. B) GDP rises by $9,999,999. C) GDP rises by $10,000,000. D) GDP rises by $10,000,001. E) GDP rises by the present value of the total cash prize.
A single-price monopolist maximizes profits by producing the output at which
A) price equals marginal cost. B) price equals marginal revenue. C) marginal revenue equals marginal cost. D) marginal cost equals average cost.
List four sources of market failure
What will be an ideal response?
New Keynesian theories of efficiency wages imply
a. voluntary unemployment. b. real wage rigidity. c. changes in unemployment represent changes in the natural rate of unemployment. d. market clearing in the labor market in the long-run. e. None of the above