The "naïve" Keynesian model is unrealistic because it
A. Does not take into account probable changes in the price level as the economy approaches full employment.
B. Assumes that AS is upward sloping when it is more probably horizontal.
C. Assumes that the price level decreases as AD increases.
D. Does not account for changes in output due to the multiplier.
Answer: A
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Suppose the real interest rate is 4% and the expected inflation rate is 3%. If the money supply increases by 10% and output, the real interest rate, and the expected inflation rate are unchanged, then the price level increases by
A) 3%. B) 4%. C) 7%. D) 10%.
A consol bond promises to pay $1000 each year, forever, starting next year. If the nominal interest rate is 5%, the present discounted value of this consol is
A) $900.00. B) $995.00. C) $2,500.00. D) $20,000.00. E) $25,000.00.