If the Fed orders a contractionary monetary policy, describe what will happen to the following variables relative to what would have happened without the policy:
a. The money supply
b. Interest rates
c. Investment
d. Consumption
e. Net Exports
f. The aggregate demand curve
g. Real GDP
h. The price level
a. The money supply decreases
b. Interest rates rise
c. Investment decreases
d. Consumption decreases
e. Net exports decrease
f. The aggregate demand curve shifts to the left
g. Real GDP falls
h. The price level falls
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In the rational expectations model, government control over aggregate demand
a. can affect real output only if policies are unexpected. b. has potential to change real output as long as aggregate supply is vertical. c. gives it the ability to change real output and employment. d. does not influence the economic behavior of individuals.
The economic principle that "unemployment rate will tend to increase as the economy moves into a recession" is an example of:
A. A normative statement B. An assumption C. A loaded terminology D. A generalization