A deadweight loss occurs in a
A) monopoly.
B) perfectly competitive market.
C) market in which the market clearing price of a good equals the marginal cost of producing it.
D) market in which the market clearing price of a good is below the marginal cost of producing it.
Answer: A
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When there is an expansionary gap, inflation will ________, in response to which the Federal Reserve will ________ real interest rates, and output will ________.
A. decline; lower; expand B. increase; raise; decline C. decline; lower; decline D. decline; raise; decline
An example of an activity that generates an external cost is
A) dumping soapsuds into a trout stream. B) national defense services. C) planting flowers along an interstate highway. D) eating an apple.
What is potential GDP?
A) It is the level of real GDP in the short run. B) It is the difference between current GDP and maximum GDP. C) It is the level of GDP at which inflation is constant. D) It is the level of real GDP in the long run.
The random walk theory implies that stock prices
a. go down, then up, and then down again. b. follow systematic trends. c. can be forecast accurately by experts who are knowledgeable about how the stock market works. d. will change as the result of unexpected factors that are virtually impossible to forecast accurately.