The AS/AD model with sticky prices predicts that, in the long run, a reduction of the money supply results in:
a. lower prices and lower output.
b. no change in prices and lower output.
c. lower prices and no change in output.
d. no change in prices or output.
Answer: c. lower prices and no change in output.
Explanation: A reduction in the money supply causes the aggregate demand to shift to the left. In the short run, there is no change in prices and lower output, but in the long run, prices fall and output returns to its initial level
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By the 20th century, the largest sector of the U.S. economy in terms of commodity output value was
a. agriculture. b. manufacturing. c. mining. d. construction.
Which of the following is not an example of nonprice competition?
a. Kellogg's introduces Froot Loops with Lemonberry Swirls. b. Sterling Planet provides consumers the opportunity to purchase renewable electricity in upstate New York. c. Mountain Dew sells "Livewire" orange soda in the summer of 2003. d. Nissan lowers the interest rate charged for new automobile financing. e. Honda produces a hybrid version of its Civic.
Suppose losses cause industry Z to contract, and as a result, the prices of inputs used intensively in the industry's production process fall. We know, as a result, that industry Z is: a. an increasing cost industry
b. a constant cost industry. c. a decreasing cost industry. d. experiencing diminishing returns.
Both Keynesians and non-Keynesians now recognize
a. the limitations of automatic stabilizers as a stabilization tool. b. the adverse effects of high marginal tax rates on economic growth. c. the difficulties involved in timing discretionary changes in fiscal policy in a stabilizing manner. d. the highly expansionary impact of budget deficits.