In addition to government purchases or changes in taxes, demand shocks in the economy can increase or decrease GDP, leading to a fall or rise in the trade balance. Which of the following would NOT represent a demand shock?
a. a change in household wealth leading to a rise in consumption expenditures.
b. a rise in inflation.
c. a change in the marginal propensity to import, causing imports to rise.
d. an increase in technology, causing investment spending to rise.
Ans: b. a rise in inflation.
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A Phillips curve implies
A. a negative relationship between consumption and saving. B. a positive relationship between inflation and prices. C. a negative relationship between inflation and unemployment. D. a positive relationship between consumption expenditure and inflation.
Higher unemployment insurance benefits tend to increase unemployment because they
a. reduce the opportunity cost of job search and, hence, increase the search time. b. increase the opportunity cost of job search and, hence, increase the search time. c. reduce the opportunity cost of job search and, hence, decrease the search time. d. increase the opportunity cost of job search and, hence, decrease the search time.