What happens in the long run after an increase in government spending growth?
A. Inflation expectations adjust and the SRAS curve shifts backwards.
B. The AD curve remains permanently in its new position.
C. The LRAS curve shifts out to match the increase in AD.
D. The AD curve shifts back to its original position.
Ans: D. The AD curve shifts back to its original position.
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Comparing a perfectly competitive market to a monopoly, which of the following is true?
A. Price will be higher and quantity will be lower in the perfectly competitive market than in the monopoly. B. Price will be higher than marginal cost in the perfectly competitive market but will be equal to marginal cost in the monopoly. C. Price will be equal to marginal revenue in the perfectly competitive market but will be higher than marginal revenue in the monopoly. D. at that point on the market demand curve which intersects the marginal cost curve.
If interest rates near zero fail to stimulate borrowing, the economy is in a
A. hyperinflation. B. housing bubble. C. money pit. D. liquidity trap.
Refer to the diagrams. The numbers in parentheses after the AD 1 , AD 2 , and AD 3 , labels indicate the levels of investment spending associated with each curve, respectively. All numbers are in billions of dollars. If the interest rate is 8 percent and the goal of the Fed is full- employment output of Q f , it should:
A. increase the interest rate from 8 percent to 10 percent.
B. decrease the interest rate from 8 percent to 4 percent.
C. decrease the interest rate from 8 percent to 6 percent.
D. maintain the interest rate at 8 percent.
During the winter of 2011-2012, the price of fuel oil increased enormously but the quantity demanded decreased only a little. This response indicates that the demand for fuel oil was
A) inelastic. B) elastic. C) unit elastic. D) perfectly elastic. E) perfectly inelastic.