Suppose that the Fed implements expansionary monetary policy that raises aggregate demand, but individuals incorrectly anticipate the policy measure (bias downward). According to new classical theory, in the short run the price level would ____________ and Real GDP would ______________. In the long run, new classical theory would predict that the price level would ___________compared to its
original long-run equilibrium level and that Real GDP would ____________.
A) rise; decline; rise; remain unchanged
B) rise; rise; rise; remain unchanged
C) rise; decline; remain unchanged; rise
D) fall; rise; remain unchanged; rise
B
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In the long run, following a combination of a negative demand shock and a temporary negative supply shock, ________
A) both inflation and output return to the original long-run equilibrium values B) inflation is permanently increased, while output returns to potential output C) output returns to potential output, while inflation may be higher or lower than its initial value D) inflation is permanently reduced, while output returns to potential output E) none of the above
A major advantage of automatic stabilizers is that they: a. guarantee that the federal budget will be balanced over the course of the business cycle. b. require no legislative action by Congress to take effect
c. simultaneously stabilize the economy and reduce the size of the public debt. d. automatically produce surpluses during recessions and deficits during economic booms.
If, in a closed economy with no Government sector, MPC = 0.625, then the value of the multiplier is
(a) 0.475. (b) 0.375. (c) 2.67. (d) 2.97.
Suppose the short-run supply curve is a straight line of slope +1 that intersects the origin. The long-run supply curve will be
A) horizontal. B) steeper. C) shallower. D) vertical.