Which of the following is NOT true with fixed exchange rates and perfect capital mobility?
A. Sterilization is impossible.
B. Monetary policy is very powerful only in the short run.
C. Monetary policy is not effective in either the long run or the short run.
D. Fiscal policy is very powerful.
Answer: B
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If regulators required firms in monopolistically competitive markets to set price equal to marginal cost,
a. firms would respond by lowering their costs. b. firms would require a subsidy to stay in business c. new firms that enter the market would operate at efficient scale. d. the most efficient firms would not be affected.
Suppose the current unemployment rate is 3 percent. If it rises to 4 percent
A. the economy will move closer to the production possibilities curve. B. the economy will move up along the production possibilities curve. C. the production possibilities curve will shift inward. D. the economy will operate farther inside the production possibilities curve.