When a permanent negative supply shock hits the economy, a permanently ________
A) lower equilibrium level of output ensues if the central bank raises interest rates
B) lower equilibrium level of output ensues if the central bank does not respond
C) higher equilibrium level of inflation ensues if the central bank does not respond
D) all of the above
E) none of the above
D
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Suppose the government increases its expenditures by $100 billion and simultaneously reduces the money supply by $100 billion. We definitely know that
A) equilibrium GDP will fall. B) equilibrium GDP will rise. C) the interest rate will rise. D) the interest rate will fall.
Suppose that the exchange rate between the U.S. dollar and the Mexican peso starts out at $0.11 per peso. If the exchange rate then changes to $0.13 per peso, there will be a(n) __________ in the quantity demanded of dollars by Mexicans, and therefore there will be a(n) __________ in the quantity supplied of pesos to the foreign exchange market
A) decrease; decrease B) decrease; increase C) increase; decrease D) increase; increase