Refer to Figure 12.1. Suppose the economy is initially at full employment with real GDP equal to potential GDP, and the expected inflation rate equal to the actual inflation rate
If the economy then experiences a negative demand shock, and the Fed responds to the results of the demand shock with an appropriate monetary policy, the Fed response will A) push the economy further down the Phillips curve, lowering the inflation rate further.
B) push the economy back up the Phillips curve, raising the inflation rate towards its full-employment level.
C) push the economy back down the Phillips curve, lowering the inflation rate towards its full-employment level.
D) push the economy further up the Phillips curve, lowering the inflation rate further.
B
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All of the following are assumptions of the production possibilities curve EXCEPT
A) resources are fully employed. B) there is a fixed time period. C) there is a fixed level of technology. D) there is a fixed demand for the products.
The school of economic thought which argues that through tax reductions, and deregulation, government creates the proper incentives for the private sector to increase aggregate supply is known as the:
a. rational expectations school. b. neo-Keynesian school. c. supply-side school. d. new classical school. e. classical school.