Picture an economy that is in general equilibrium. What would happen if the natural rate of unemployment were to experience an increase?
A) according to the Phillips curve, the ensuing negative unemployment gap would exert inflationary pressures
B) according to Okun's Law, the ensuing negative unemployment gap would be consistent with a positive output gap
C) according to the AD-AS framework, the LRAS curve would shift to the left and the ensuing positive output gap would be closed by subsequent leftward shifts in the AS curve to higher equilibrium levels of inflation
D) all of the above
E) none of the above
D
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Borrowing to pay for long-lived capital expenditures makes sense as
A) the benefits are received in the current year so the burden of paying for them should be spread over many years. B) the benefits are received in the current year so the burden of paying for them should be paid in the current year. C) the benefits are received over many years so the burden of paying for them should be spread over many years. D) the benefits are received over many years so the burden of paying for them should be paid in the current year.
Which of the following problems will most likely occur with a system of flexible exchange rates?
A. Macroeconomic instability as exports and imports fluctuate with the exchange rates. B. Government favoritism toward selected importers of goods and services. C. The emergence of black markets for foreign currency. D. Distortions in trade patterns away from the pattern suggested by comparative advantage.