At low levels of output, the economy can expand with little or no increase in the overall price level because
A. people will be expecting the price level to fall.
B. at low levels of output the aggregate supply curve is negatively sloped.
C. there is excess supply so prices are kept low.
D. firms likely hold excess labor and capital, and production can be increased without causing input prices to increase.
Answer: D
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For each of the following changes, what happens to the real interest rate and output in the long run, after the price level has adjusted to restore general equilibrium? How would the results differ, if at all, between the classical and Keynesian
model? Draw a diagram for each part to illustrate your result. (a) Wealth rises. (b) Money supply rises. (c) The future marginal productivity of capital increases. (d) Expected inflation declines. (e) Future income declines.
Which of the following helps explain why depositors sometimes put their funds in demand deposits rather than NOW accounts?
A) Demand deposits pay interest, whereas NOW accounts do not pay interest. B) Businesses may not hold NOW accounts. C) Checks may be written against demand deposits, but not against NOW accounts. D) Demand deposits are more liquid than NOW accounts.