Chapter 20: Q 7. (page 546)
“If prices and wages are perfectly flexible, then and changes in aggregate demand have a smaller effect on output.” Is this statement true, false, or uncertain? Explain your answer.
The statement is false.
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Why would a central bank be concerned about persistent, long-term budget deficits?
Explain why the aggregate demand curve slopes downward and the short-run aggregate supply curve slopes upward.
If credit cards were made illegal by congressional legislation, what would happen to velocity? Explain your answer.
“If nominal GDP rises, velocity must rise.” Is this statement true, false, or uncertain? Explain your answer.
Some payment technologies require infrastructure (e.g., merchants need to have access to credit card swiping machines). In most developing countries historically this infrastructure has either been nonexistent or very costly. However, recently mobile payment systems have expanded rapidly in developing countries as they have become cheaper. Everything else being equal, would you expect the transaction component of the demand for money to be increasing or decreasing in a developing country relative to a rich country?
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