Suppose the output gap is zero, and policy makers wish to reduce the inflation rate from 10 percent to 5 percent. Which of these policies seems best?
A) contractionary policies to reduce output at least 5 percent below potential output
B) a convincing declaration of the inflation rate target, so that expected inflation falls to 5 percent
C) no policy action; inflation will fall on its own, eventually
D) no policy action; inflation will converge to its long-run rate, regardless of policy
E) price and wage controls to counteract their stickiness
B
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In an inflationary expenditure gap, the equilibrium level of real GDP is
A. equal to full-employment real GDP. B. greater than full-employment real GDP. C. greater than planned investment. D. less than full-employment real GDP.
In the figure above, the total revenue of a perfectly price-discriminating monopolist at the profit-maximizing output is equal to the area of
A) 0aij. B) 0dgh. C) aci. D) obeij.
Suppose Lisa spends all of her money on books and coffee. When the price of coffee decreases, the
A) substitution effect on coffee is positive, and the income effect on coffee is positive. B) substitution effect on coffee is ambiguous, and the income effect on coffee is ambiguous. C) substitution effect on coffee is positive, and the income effect on coffee is ambiguous. D) substitution effect on coffee is ambiguous, and the income effect on coffee is positive.
Prior to World War II, the international financial system had operated on
a. a floating exchange rate system b. a managed exchange rate system c. a laissez-faire exchange rate system d. the gold standard e. the dollar standard