Which of the following statements is true of the economy in the long run? In the long run,
1. real GDP eventually moves to potential because all wages and prices are assumed to be flexible.
2. the economy can achieve its natural level of employment and potential output at any price level.
3. there is no cyclical unemployment.
A. I only
B. I and II only
C. I and III only
D. I, II, and III
Ans: D. I, II, and III
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If the ________ curve is relatively more unstable than the ________ curve, a money supply target is preferred
A) IS; IS B) IS; LM C) LM; IS D) LM; LM
In the second half of the twentieth century, the U.S. inflation rate was at its highest in the period from
A) 1960 to the early 1970s. B) the mid-1970s to the early 1980s. C) the mid-1980s to the early 1990s. D) 1990-2000.
In 2009, Congress passed tax laws to reduce income tax rates for some taxpayers. This action is called
A) a discretionary fiscal policy. B) a discretionary revenue policy. C) an automatic fiscal policy. D) an annual tax policy. E) induced tax policy.
The Friedman—Phelps analysis shows that a negative relationship between inflation and unemployment holds
A) even when expected inflation changes. B) even when the natural rate of unemployment changes. C) even if both the expected inflation rate and the natural rate of unemployment change. D) as long as the expected inflation rate and the natural rate of unemployment are approximately constant.