When there is an expansionary gap, inflation will ________, in response to which the Federal Reserve will ________ real interest rates, and output will ________.
A. decline; lower; expand
B. increase; raise; decline
C. decline; lower; decline
D. decline; raise; decline
Answer: B
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Which fundamental economic question is most closely related to the issues of income distribution and poverty?
A. The What to Produce question. B. The Why to Produce question. C. The How to Produce question. D. The For Whom to Produce question.
Economists who believe that the economy has a strong self-correcting mechanism argued that, after September 11, 2001, the economy needed
A. a quick and expansionary fiscal policy stimulus. B. a quick and expansionary monetary policy stimulus. C. only a short time to return to equilibrium full employment. D. President Bush to propose a large budget stimulus package.
Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of demand for X is unitary (coefficient = 1). If the incidence of the tax is such that consumers pay $1.80 of the tax and the producers pay
$.20, we can conclude that the: A. supply of X is highly inelastic. B. supply of X is highly elastic. C. demand for X is highly inelastic. D. demand for X is highly elastic.
The Federal Reserve didn't always communicate its actions to the public like it does today. As recently as the mid-1990s, secrecy ruled. Why do you think the Fed and most central banks now are more public about their actions and the reasons for them?
What will be an ideal response?