The aggregate expenditures model is built upon which of the following assumptions?
A. Prices are fixed.
B. The economy is at full employment.
C. Prices are fully flexible.
D. Government spending policy has no ability to affect the level of output.
A. Prices are fixed.
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According to the natural rate hypothesis, if the economy begins at full employment with an unemployment rate of 5 percent and then the inflation rate increases from 2 percent to 4 percent, then the economy will
A) not see any lower unemployment, even temporarily, just higher inflation. B) have lower unemployment but then return to its natural rate with an inflation rate of 4 percent. C) eventually return to its natural rate of 2 percent inflation and its natural unemployment rate of 5 percent. D) eventually return to its natural rate of 2 percent inflation and a new lower unemployment rate. E) stay at the 4 percent inflation rate and the natural unemployment rate will fall.
The interest rate that banks charge other banks for loans is the
A) discount rate. B) prime rate. C) federal funds rate. D) Treasury bill rate.