If a broad increase in the price of stocks causes an increase in the real wealth of individuals, then the
Answer(s): B
As the real wealth of households increases, people demand more goods and services. This causes the entire aggregate demand curve to shift to the right.
A client tells you that he currently earns $100,000 per year and is comfortable with his lifestyle at that income level. He says he is planning on retiring in 5 years. If inflation averages 8% over the next 5 years, approximately what income level will this client require to maintain his current lifestyle?
The calculation is as follows: (1.08)^(5)*100000=$146,933
Use the table below to choose the correct answer.Time Period Actual Inflation14 percent24 percent36 percent48 percentAccording to the adaptive expectations hypothesis, at the beginning of period 3, decision makers would expect inflation during period 3 to be ________.
Answer(s): D
Under the adaptive expectations hypothesis economic agents base their future expectations on actual outcomes observed during recent periods. Thus, the most recent periods suggest an inflation rate of 4 percent will persist in the future.
Congress passes a law requiring the government to pay certain debts of companies that have declared bankruptcy. Which of the following terms most accurately describes this program?
An automatic stabilizer is anything that would decrease the government budget surplus during slow economies and increase the surplus during strong economic periods. During slow economic periods, bankruptcies are likely to rise, and by paying a portion of the defunct firms' debts, the government is injecting demand into the economy. This should be distinguished from an expansionary fiscal policy, because the program is not designed to expand national income, but to stabilize a slowdown without the need for further government action.
The "extra" money you take on a trip in case your car breaks down is an example of the
Answer(s): E
Precautionary demand for money is defined as a demand for cash balances in case of unforeseen circumstances which require money.
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