If expectations are adaptive, how will the economy adjust to a new long-run equilibrium in response to expansionary monetary policy? Support your answer with a graph of the Phillips curve
What will be an ideal response?
Expansionary monetary policy increases the inflation rate. With adaptive expectations, workers and firms will underestimate inflation, resulting in a decrease in the real wage and a decrease in the unemployment rate (move from A to B on the short-run Phillips curve below). Eventually, workers and firms will adjust to the fact that inflation is higher, shifting the short-run Phillips curve up and increasing the unemployment rate to its natural rate (move from B to C in the graph below).
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The table above shows the payoff matrix for a prisoners' dilemma. In the Nash equilibrium
A) both prisoners get 3 years in jail. B) both prisoners get 2 years in jail. C) both prisoners get 1 year in jail. D) both prisoners get 10 years in jail.
In a sealed-bid, second-price auction, you should bid
A) your estimate of what others value the good at. B) one dollar more than your estimate of what the second-highest bid will be. C) your highest value. D) the common value of the good.
If a competitive firm maximizes short-run profits by producing some quantity of output, which of the following must be TRUE at that level of output?
A) p = MC B) MR = MC C) p ? AVC D) All of the above
Were Social Security benefits to cease, almost half of all older Americans would fall into poverty
Indicate whether the statement is true or false