If the Federal Reserve announces that its target for the federal funds rate is rising from 4 percent to 4.25 percent, how do you expect workers and firms to react?
A) If the Fed's announcement is not credible, workers and firms will not expect inflation to fall so they will reduce their consumption and investment spending, which will increase aggregate demand and reduce inflation.
B) As long as the Fed's announcement is credible, workers and firms will reduce their consumption and investment spending, which will reduce aggregate demand and reduce inflation.
C) As long as the Fed's announcement is credible, workers and firms will increase their consumption and investment spending, which will increase aggregate demand and inflation.
D) Workers and firms will incorporate the increase in interest rates into their expectations of inflation, and they will expect inflation to rise as a result of Fed's policy announcement.
B
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To Keynesians, a vertical aggregate supply curve
A) is nonsensical. B) holds in the short run but not the long run. C) holds in the long run but not the short run. D) will only be encountered at the full-capacity output of the economy.
During the 1960s, U.S. steel firms argued they needed tariff protection because Germany and Japan were using new mills to make steel since their old mills were destroyed in World War II. Essentially, this argument is a form of the
A) infant-industry argument. B) anti-dumping argument. C) countering foreign subsidies argument. D) national defense argument.