A decrease in the growth rate of the money supply causes a short-run departure from the long-run equilibrium because:
A. nominal growth rates are sticky.
B. inflation expectations adjust quickly.
C. the SRAS curve is horizontal.
D. prices and wages are sticky.
Answer: D. prices and wages are sticky.
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Refer to Table 1-6. Using marginal analysis, how many hours should Ivan extend his hours of operations?
A) 2 hours B) 3 hours C) 4 hours D) 5 hours E) 6 hours
Which of the following characterizes the Fed's ability to prevent recessions?
A) The Fed is incapable of changing aggregate demand through its monetary policy tools. B) The Fed is able to "fine tune" the economy and entirely eliminate recessions. C) The Fed is able to eliminate the business cycle and achieve absolute price stability. D) The Fed is able to keep a recession shorter and milder than it would otherwise be.
Suppose the economy is in a long-run equilibrium when a temporary, favorable aggregate supply shock occurs. On the graphs above, show what happens to bring the economy back to long-run equilibrium, assuming that there is no policy response
In words, explain why "no response" is the best policy.
The excess burden of a tax is:
a. the amount by which the price of a good increases. b. the loss of consumer and producer surplus that is not transferred to the government. c. the amount by which a person's after-tax income decreases as a result of the new tax. d. the welfare costs to firms forced to leave the market due to an inward shift of the demand curve.