According to the Lucas critique, if past increases in the short-term interest rate have always been temporary, then
A) the term-structure relationship using past data will then show only a weak effect of changes in the short-term interest rate on the long-term rate.
B) the term-structure relationship using past data will show no effect of changes in the short-term interest rate on the long-term rate.
C) one cannot predict the term-structure relationship as it depends on expectations.
D) the term-structure relationship using past data will nevertheless show a strong effect of changes in the short-term interest rate on the long-term rate because of a change in the way expectations are formed.
A
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A large open economy reduces its investment demand. This causes the world real interest rate to ________ and the country's current account balance to ________
A) rise; fall B) rise; rise C) fall; rise D) fall; fall
Which of the following is the best example of a vertically integrated firm?
a. General Electric, which produces light bulbs, jet engines, washing machines, and so on b. Kinko's, which has a photocopy store near many colleges and universities c. USX Corporation, which owns ore and coal mines, coke ovens, blast furnaces, mills, and foundries d. Intel, which makes computer chips for most of the computer manufacturers e. Century 21, which has real estate offices that help people sell a house in one city and buy another house in another city
How would a decrease in the price of the feed grains used to feed cattle affect the market for beef?
A. The demand for beef would increase, increasing beef prices. B. The demand for beef would decrease, decreasing beef prices. C. The supply of beef would increase, decreasing beef prices. D. The supply of beef would decrease, increasing beef prices.
The fear of unwanted price wars may explain why many firms are reluctant to:
A. reduce wages when a decline in aggregate demand occurs. B. reduce prices when a decline in aggregate demand occurs. C. expand production capacity when an increase in aggregate demand occurs. D. provide wage increases when labor productivity rises.