The economy is in short-run equilibrium:
A. when the AD and AS curves intersect at potential output Y*.
B. when the AD and AS curves intersect at a level of real GDP that is above or below
Y*.
C. when the AD and AS curves become vertical.
D. at the peak of the business cycle.
When a negative externality is present in a market, the government should:
A. always intervene.
B. intervene it if the public supports doing so.
C. never intervene.
D. intervene if the benefit of doing so exceeds the cost.
In the short-run Keynesian model, if the mpc equals 0.8, then to increase planned
aggregate spending by $20 billion at any output level, government spending must be
increased by ______ or net taxes must be decreased by _____.
A. $20 billion; $20 billion
B. more than $20 billion; more than $20 billion
C. less than $20 billion; less than $20 billion
D. $20 billion; more than $20 billion
The direct trade of goods and services for other goods and services is called:
A. financial intermediation.
B. diversification.
C. barter.
D. using a medium of exchange.
The ______ is the rate of change of the _______.
A. base year price index; current year price index
B. current year price index; base year price index
C. CPI; rate of inflation
D. rate of inflation; CPI
At his current level of consumption, Evan gets twice as much marginal utility from an
additional bottle of water as that from an additional bottle of soda. If the price of soda is
$1.00 per bottle, then Evan is maximizing utility if the price of a bottle of water is:
A. $1.00
B. $1.50
C. $2.00
D. $.50
When commercial banks borrow reserves from the Fed, the quantity of reserves in the
banking system ______ and, ultimately, the money supply _____.
A. increases; increases
B. increases; decreases
C. decreases; increases
D. decreases; decreases