QUESTION 30 Suppose the economy is in long-run equilibrium at an inflation rate of 1% Then...

QUESTION 30

Suppose the economy is in long-run equilibrium at an inflation rate of 1% Then inflation expectations rise to 2% and inflation rises to 3%. The increase in expected inflation shifts the short-run Phillips curve

	a.	left. Overall, unemployment moves above its natural rate.
	b.	left. Overall, unemployment moves below its natural rate.
	c.	right. Overall, unemployment moves below its natural rate.
	d.	right. Overall, unemployment moves above its natural rate.

At a given price level, an increase in which of the following shifts aggregate demand to the right?

a.
consumption

b.
investment

c.
government expenditures

d.
All of the above are correct.

Reforming tax laws to encourage saving is motivated by which of the Ten Principles of Economics from Chapter 1?

	a.	Trade can make everyone better off (Principle 5).
	b.	A country’s standard of living depends on its ability to produce goods and services (Principle 8).
	c.	Markets are usually a good way to organize economic activity (Principle 6).
	d.	The cost of something is what you give up to get it (Principle 2).

Solutions

Expert Solution

An increase in inflation expectations shifts the short run Phillips curve to the right such that at any inflation rate, unemployment is higher than before.

The correct option is, c) right. Overall, unemployment moves below its natural rate.

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An increase in government spending, investment expenditure and consumption expenditure shifts the aggregate demand curve to the right.

The correct option is, d) All of the above.

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Reforming tax laws to encourage savings is described by the economic principle " People responds to incentives".

The correct option is, b) A country’s standard of living depends on its ability to produce goods and services (Principle 8).

Rahul Sunny answered 1 year ago

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Subjects

	a.	consumption
	b.	investment
	c.	government expenditures
	d.	All of the above are correct.