Menu costs refers to
a. resources used by people to maintain lower money holdings when inflation is high.
b. resources used to price shop during times of high inflation.
c. the distortion in incentives created by inflation when taxes do not adjust for inflation.
d. the cost of more frequent price changes induced by higher inflation.
d
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The natural rate hypothesis argues that the economy will:
a. self-correct to the natural rate of inflation. b. require expansionary fiscal policy to reach the natural rate of unemployment. c. self-correct to the natural rate of unemployment. d. require expansionary monetary policy to reach the natural rate of unemployment.
Assume that the government increases spending and finances the expenditures by borrowing in the domestic capital markets. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the GDP Price Index and reserve-related (central bank) transactions in the context of the Three-Sector-Model?
a. The GDP Price Index falls, and reserve-related (central bank) transactions remain the same. b. The GDP Price Index and reserve-related (central bank) transactions remain the same. c. The GDP Price Index falls, and reserve-related (central bank) transactions become more negative (or less positive). d. There is not enough information to determine what happens to these two macroeconomic variables. e. The GDP Price Index rises, and reserve-related (central bank) transactions remain the same.