Why might an equation that has always predicted accurately in the past prove to be wrong following a policy change?
a. Because the policy may change people's behavior and invalidate the equation.
b. Because people's expectations may cease to be rational.
c. Because uncertainty means that every equation contains some degree of error.
d. Because the policy change may affect economic variables not contained in the equation.
a. Because the policy may change people's behavior and invalidate the equation.
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An increase in ________ increases potential GDP and ________ aggregate supply
A) the money price of oil; decreases B) the money wage rate; decreases C) the money wage rate; increases D) technology; decreases E) technology; increases
During the 1960s, 1970s, and early 1980s, traditional bank profitability declined because of
A) financial innovation that increased competition from new financial institutions. B) a decrease in interest rates to fight the inflation problem. C) a decrease in deposit insurance. D) increased regulation that prohibited banks from making risky real estate loans.