Starting from full employment at the initial target inflation rate, if there is an adverse inflation shock, then the Federal Reserve must _____ in order to keep inflation from becoming permanently higher.
A. increase the target inflation rate.
B. decrease the target inflation rate.
C. maintain the initial target inflation rate.
D. shift the short-run aggregate supply curve up.
Answer: C. maintain the initial target inflation rate.
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Which of the following is an assertion of the Heckscher-Ohlin model?
A) The wage-rental ratio is determined by relative product prices. B) An increase in a country's labor supply will increase production of both the capital-intensive and the labor-intensive good. C) In the long-run, labor is mobile and capital is not. D) Factor price equalization will occur only if there is costless mobility of all factors across borders. E) Factor endowments determine the technology that is available to a country, which determines the good in which the country will have a comparative advantage.
William engages in an activity that influences the well-being of a bystander. In which of the following instances does an externality arise?
a. The impact of William's activity on the bystander is adverse, and William compensates the bystander accordingly. b. The impact of William's activity on the bystander is adverse, but William fails to compensate the bystander. c. The impact of William's activity on the bystander is beneficial and the bystander compensates William accordingly. d. Externalities arise in all of the above cases.