If output falls 1.0 percentage point below its potential, the Taylor rule predicts that the Fed should:
A. reduce the federal funds rate by 0.5 percentage points.
B. raise the federal funds rate by 1.0 percentage points.
C. raise the federal funds rate by 1.5 percentage points.
D. reduce the federal funds rate by 1.0 percentage points.
Answer: A
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The labor demand curve slopes downward because
A) the firm maximizes profits by hiring more labor when the real wage rate rises. B) workers supply more hours of work when the real wage rate rises. C) the firm maximizes profits by hiring more labor when the real wage rate falls. D) workers supply fewer hours of work when the real wage rate rises.
Sticky prices can result from all of the following except:
a. market structure. b. long-term contracts between buyers and sellers. c. setting prices on the basis of costs when wages are sticky. d. expansionary monetary policy.