The natural rate hypothesis argues that the economy will:
A. self-correct to the natural rate of inflation.
B. require expansionary fiscal policy to reach the natural rate of unemployment.
C. self-correct to the natural rate of unemployment.
D. require expansionary monetary policy to reach the natural rate of unemployment.
Answer: C
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A firm using Baumol's model will do one of the following if the interest rate on short-term securities went up.
A) increase the collection period B) decrease the average cash balance C) increase the average cash balance D) decrease the collection period
Excessive use of monetary or fiscal policies to achieve stabilization may:
A) require the cooperation of firms and the public in order to be effective. B) backfire if the economy becomes destabilized through erratic application. C) never be necessary as long as the economy can rely on automatic stabilizers. D) be better than weaker measures that may not hit the target.