Given the following formula for the Taylor rule:Target federal funds rate = natural rate of interest + current inflation + 1/2(inflation gap) + 1/2(output gap)Every one percent decrease in the rate of inflation will:
A. raise the target federal funds rate by 1.5%.
B. lower the target federal funds rate by 0.5%.
C. raise the target federal funds rate by 0.5%.
D. lower the target federal funds rate by 1.5%.
Answer: D
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Refer to the figure below. In response to gradually falling inflation, this economy will eventually move from its short-run equilibrium to its long-run equilibrium. Graphically, this would be seen as 
A. long-run aggregate supply shifting leftward B. Short-run aggregate supply shifting upward C. Short-run aggregate supply shifting downward D. Aggregate demand shifting leftward
One role government can play in addressing market failure is to
A) enforce the rules of exchange. B) facilitate decision making for private goods. C) promote imperfect competition. D) increase economic uncertainty.
The table above gives the CPI for a nation. Based on the table, we can determine that the reference base period is
A) 1994. B) 1996. C) 1998-2000. D) 2002. E) More information about when the Consumer Expenditure Survey was undertaken is needed to answer the question.
Refer to Figure 4-4. The figure above represents the market for iced tea. Assume that this is a competitive market. Which of the following is true?
A) Both 10,000 and 30,000 are economically inefficient rates of output. B) If the price of iced tea is $3, consumers will purchase more than the economically efficient output. C) If the price of iced tea is $3, the output will be economically efficient but there will be a deadweight loss. D) If the price of iced tea is $3, producers will sell 30,000 units of iced tea but this output will be economically inefficient.