The rational expectations argument relies on
A) wages and prices being sticky so that changes in expectations about future economic activity and the price level will prevent the short-run aggregate supply curve from shifting quickly to restore long-run equilibrium.
B) the ability of monetary policy authorities to identify and respond quickly to close output gaps and restore the economy to its long-run equilibrium.
C) wages and prices being sufficiently flexible so that the change in expectations about future economic activity and the price level will allow the short-run aggregate supply curve to shift quickly to restore long-run equilibrium.
D) wages and prices being sufficiently flexible so that changes in expectations about future economic activity and the price level will allow the aggregate demand curve to shift quickly to restore long- run equilibrium.
Answer: C) wages and prices being sufficiently flexible so that the change in expectations about future economic activity and the price level will allow the short-run aggregate supply curve to shift quickly to restore long-run equilibrium.
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Suppose a price searcher faces the following demand curve: At $100, $90, $80, $70, and $60, the quantity demanded is 1, 2, 3, 4, and 5 units respectively. Which statement below is true?
A) Total revenue is $100. B) Total revenue is $190 when 2 units are sold. C) Total revenue is $400 when 5 units are sold. D) Marginal revenue is $80 when the price is $90.
Which of the following actions by the Fed would increase the money supply?
a. Increasing the required reserve ratio. b. Selling government bonds in the open market. c. Increasing the discount rate. d. Reducing the required reserve ratio.