Suppose a recession occurs as a result of a supply shock, and instead of the economy naturally working its way back to equilibrium, the government uses policy to shift the aggregate demand curve to fight the recession. Using policy this way would
A) quickly result in a new, higher level of real GDP and a permanently lower price level.
B) bring real GDP back to potential GDP more slowly but would bring the price level back to the original price level more quickly.
C) bring the price level back to its original level more quickly but would result in a permanently lower level of potential GDP.
D) bring real GDP back to potential GDP more quickly but would result in a permanently higher price level.
D
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If the government imposes price controls and prevents prices from adjusting naturally to supply and demand, a. it equates the amount buyers are willing and able to buy with the amount sellers are willing and able to supply. b. it adversely affects the allocation of resources
c. it improves both equality and efficiency. d. it improves efficiency.
The marginal propensity to save is
a. the change in saving induced by a change in consumption b. (change in S) × (change in Y) c. 1 – MPC/MPC d. (change in Y – bY)/(change in Y) where b is the MPC e. 1 – MPC