According to real business cycle theory, an increase in financial frictions might lead to ________, if ________
A) a decrease in output; the rise in the credit spread causes a leftward shift of aggregate demand
B) a decrease in inflation; the disruption of capital markets results in a leftward shift of long-run aggregate supply
C) a decrease in output; the disruption of capital markets results in a leftward shift of long-run aggregate supply
D) a decrease in output; a decline in expected output causes a leftward shift of aggregate demand
C
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An increase in the discount rate
A) increases the cost of reserves borrowed from the Fed. B) signals the Fed's desire to increase the money supply. C) signals the Fed's desire to lend increased reserves to banks. D) reduces the cost of reserves borrowed from the Fed.
At the current level of output, the marginal social cost of tennis balls is greater than the marginal social benefit. Then
A) more than the efficient quantity of tennis balls is being produced. B) there is excess demand for tennis balls. C) firms producing tennis balls must be earning negative profit. D) too few tennis balls are being produced.