An increase in the expected future inflation rate will:
Answer(s): A
An increase in the expected future inflation rate will have two impacts. First, sellers will have reduced incentive to sell at current prices; they would rather store the current production for future sales at higher prices.Secondly, resource suppliers, to the extent that they anticipate the higher inflation, will increase the resource prices in their contracts. Both these factors will serve to reduce the quantity the producers will be ready to supply at any given price, moving the short run supply curve to the left. The long-run supply curve will not be affected since over that period, all adjustments to the expected future conditions will have been made, restoring the equilibrium.
Countries A and B have the same monetary base and reserve requirement. People in A tend to hold more currency than people in B. The money supply will be:
When people hold currency instead of bank deposits, the money goes out of circulation temporarily and the full impact of the deposit expansion multiplier is not felt. The higher this tendency to hold currency, the lower will be the money supply, even though the monetary base has not been affected.
According to Say's law, there cannot be overproduction of goods and services because
Answer(s): D
Say's Law is the view that production creates its own demand. Demand will always be sufficient to purchase the goods produced because the income payments to the resource suppliers will equal the value of the goods produced.
The crowding-out model implies that a
Answer(s): C
The crowding out theory implies that government borrowing drives up real interest rates and thus crowds out" private investment. Private investment falls under higher interest rates because the cost of investment (the real interest rate) rises if the government borrows heavily. Under the usual law of supply and demand, the government causes the interest rate to rise under deficit spending because there is a limited supply of loanable funds. The government competes with the private sector for these resources and thus drives up the price (i.e., the interest rate).
Within the Keynesian model, equilibrium output takes place ________.
Equilibrium is defined in this model as when aggregate expenditures are equal to output. Thus, the sum of planned consumption, investment government purchases and the difference between exports and imports must equal GDP.
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