How might inflation, even if fully anticipated, prevent the classical dichotomy from holding, even in the long run?

What will be an ideal response?

The classical dichotomy asserts that output is determined solely by the aggregate production function and the quantities of factors available. Inflation is like a negative technology shock that lowers productivity. Shoe-leather and menu costs represent uses of resources that add nothing to aggregate output. Because price increases throughout the economy are spread out over time, it is rational to react to the temporary changes in relative prices, even if the changes are known to be temporary. This causes distortions in the allocation of resources, and temporary, rational distortions are distortions, nonetheless.

Economics

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After the repeal of Regulation Q, a problem for savings-and-loan associations (S&Ls) was that most of their assets were at __________ interest rates while their deposits were at __________ interest rates

A) low; low B) low; high C) high; low D) high; high

Economics

Answer the following statements true (T) or false (F)

1. The Laffer Curve indicates that lower tax rates will increase output. 2. The Laffer Curve suggests that within a certain range, lower tax rates will increase tax revenues. 3. One implication of the Laffer Curve in supply-side arguments is that cutting taxes may actually reduce the budget deficit, contrary to what traditional economics teaches. 4. The experience of the U.S. with supply-side policies is that tax cuts affect the economy more on the demand side rather than the supply side.

Economics