Refer to Figure 26-12. In the dynamic AD-AS model, the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues policy. This will result in
A) real GDP levels higher than what would occur if no policy had been pursued.
B) inflation rates higher than what would occur if no policy had been pursued.
C) potential real GDP levels lower than what would occur if no policy had been pursued.
D) unemployment rates higher than what would occur if no policy had been pursued.
D
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Because inflation was not a serious problem during the Great Depression, Keynes's analysis assumed
A) that unemployment also was not a problem. B) that the money supply was fixed. C) that the price level was fixed. D) that monetary policy is not effective.
Accounting profits are typically
A) greater than economic profits because accounting profits do not include explicit costs. B) greater than economic profits because accounting profits do not include implicit costs. C) smaller than economic profits because accounting profits do not include explicit costs. D) equal to economic profits in the long run.