The self-correcting property of the economy means that output gaps are eventually eliminated by:
A. decreasing inflation only.
B. government policy.
C. increasing or decreasing inflation.
D. increasing or decreasing potential output.
Answer: C
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The actual multiplier effect in the U.S. economy is less than the multiplier effect in the text examples because:
A. the real-world MPS is larger than the MPS in the examples. B. in addition to saving, households use some of any increase in income to buy imported goods and to pay additional taxes. C. the gap between the nominal interest rate and the real interest rate widens as the economy expands or contracts. D. the MPC in the United States is greater than 1.
Financial intermediation exists, in part, because:
A. the transaction costs associated with direct finance can at times be prohibitive. B. financial markets work so well. C. transaction costs of financial intermediation is always higher than direct finance. D. direct finance through stocks and bonds is the dominant form of financing.
Each point on a demand curve shows
A) the consumer surplus received from purchasing a given quantity of a product. B) the legally determined maximum price that sellers may charge for a given quantity of a product. C) the willingness of consumers to purchase a product at different prices. D) the economic surplus received from purchasing a given quantity of a product.
Using Figure 1 above, if the aggregate demand curve shifts from AD2 to AD1 the result in the long run would be:
A. P4 and Y1. B. P4 and Y2. C. P5 and Y1. D. P5 and Y2.