Some economists argue that the short-run Phillips curve is not vertical, and that monetary policy can be effective in the short run. Which one of the following is not one of the reasons for this skepticism?
A) Individuals may not be able to use information of Fed Policy to make a reliable forecast of inflation.
B) Empirical evidence shows workers and firms have rational expectations.
C) Contracts with workers and suppliers may hinder firms' abilities to adjust to price changes.
D) Wages and prices may not adjust rapidly enough to keep the short-run Phillips curve vertical.
Ques. 2A period of economic expansion ends with a business cycle trough.
Indicate whether the statement is true or false
Ques. 3Tax cuts on business income ________ aggregate demand.
A) would increase B) would not change
C) may increase or decrease D) would decrease
Ques. 4Refer to Figure 23-4. Potential GDP equals 100 billion. The economy is currently producing GDP1 which is equal to 90 billion. If the MPC is 0.8, then how much must autonomous spending change for the economy to move to potential GDP?
A) -18 billion B) -2 billion C) 2 billion D) 18 billion
Ques. 5If the central bank can act as a lender of last resort during a banking panic, banks can
A) encourage the public to borrow directly from the central bank, and this will worsen the banking panic.
B) satisfy customer withdrawal needs and eventually restore the public's faith in the banking system.
C) borrow more and more money from the central bank, and this will lower its reserves and decrease the public's faith in the banking system.
D) call in their loans to their customers and eventually restore the public's faith in the banking system.
Ques. 6In which of the following situations might you expect expansionary monetary policy to reduce the unemployment rate?
A) if changes in monetary policy are unanticipated B) if expectations are rational
C) if actual inflation is lower than expected D) if actual inflation is higher than expected
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