Chapter 19: Q5. (page 405)
An economy is producing at full employment when AD unexpectedly shifts to the left. A new classical economist would assume that as the economy adjusts back to producing at full employment, the price level will ________.
a. increase
b. decrease
c. stay the same
The correct option is (b): decrease.
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If prices are sticky and the number of dollars of gross investment unexpectedly increases, the _________ curve will shift _________.
a. AD; right
b. AD; left
c. AS; right
d. AS; left
What is an efficiency wage? How might payment of an above-market wage reduce shirking by employees and reduce worker turnover? How might efficiency wages contribute to downward wage inflexibility, at least for a time, when aggregate demand declines?
You have just been elected president of the United States, and the present chair of the Federal Reserve Board has resigned. You need to appoint a new person to this position, as well as a person to chair your Council of Economic Advisers. Using Table 19.1 and your knowledge of macroeconomics, identify the views on macro theory and policy you would want your appointees to hold. Remember, the economic health of the entire nation—and your chances for reelection—may depend on your selection.
Suppose that the money supply is \(1 trillion and money velocity is 4. Then the equation of exchange would predict nominal GDP to be:
a. \)1 trillion.
b. \(4 trillion.
c. \)5 trillion.
d. $8 trillion
If the money supply fell by 10 per cent, a monetarist would expect nominal GDP to __________.
a. rise
b. fall
c. stay the same
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