Economists believe that a little bit of inflation may be a good thing. What are the potential benefits of inflation?
First, economists believe that inflation "greases the wheels" of the labor market. Because workers resist cuts in nominal wages, a fall in real wages is more easily accomplished with a rising price level. Inflation thus makes it easier for real wages to adjust to changes in labor market conditions.
Second, the economy may need negative real interest rates to provide sufficient stimulus to aggregate demand. Inflation allows for the possibility of negative real interest rates
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Everything else held constant, a decrease in marginal tax rates would likely have the effect of ________ the demand for municipal bonds, and ________ the demand for U.S. government bonds
A) increasing; increasing B) increasing; decreasing C) decreasing; increasing D) decreasing; decreasing
The fraction of a change in real disposable income that is spent is referred to as the
A) APC. B) MPC. C) MPS. D) APS.