The theory of liquidity preference assumes that the nominal supply of money is determined by the
a. level of real output only.
b. interest rate only.
c. level of real output and by the interest rate.
d. Federal Reserve.
d
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Refer to Figure 12.1. Suppose the economy is initially at full employment with real GDP equal to potential GDP, and the expected inflation rate equal to the actual inflation rate
If the economy then experiences a negative demand shock, and the Fed responds to the results of the demand shock with an appropriate monetary policy, the Fed response will A) push the economy further down the Phillips curve, lowering the inflation rate further. B) push the economy back up the Phillips curve, raising the inflation rate towards its full-employment level. C) push the economy back down the Phillips curve, lowering the inflation rate towards its full-employment level. D) push the economy further up the Phillips curve, lowering the inflation rate further.
The word stagflation describes a situation in which:
a. a higher price level occurs simultaneously with higher employment b. a lower price level occurs simultaneously with economic growth. c. a higher price level occurs simultaneously with lower aggregate output. d. a lower price level occurs simultaneously with federal budget deficits. e. a higher price level occurs simultaneously with federal budget surpluses.
In the long run, new firms can enter an industry and so the supply elasticity tends to be:
A. more elastic than in the short run. B. less elastic than in the short run. C. perfectly inelastic. D. perfectly elastic.
In order for money to be an effective medium of exchange, it is important to have it serve as a unit of account.
Answer the following statement true (T) or false (F)