Reference no: EM132471717

Please explain why

1. Which of the following correctly describes a theory of wage behavior during the business cycle?

a) Real Business Cycle theory holds that workers are relatively unresponsive to wage changes

b) Classical theory holds that nominal wages are inflexible

c) Keynesian theory holds that real wages may rise during recessions, preventing labor markets from clearing

d) Rational expectations theory holds that workers continue to anticipate wage increases during recessions

e) Marxist theory holds that unions cause recessions by keeping wages too high

2. According to the quantity theory of money,

a) the quantity of money determines the long run equilibrium price level

b) the amount of money in the economy determines the long run quantity of output

c) money affects the aggregate supply curve, while the aggregate demand curve determines real output

d) the money supply only affects the economy in the long run, not in the short run

e) the full-capacity level of output determines the supply of money needed in the economy

3. Consider the following (hypothetical) cash economy with no banks. The money supply consists entirely of $1000 in currency. Output is currently at potential. The government is currently faced with a $100 budget deficit and chooses not to raise taxes, but instead prints $100 more currency with which to balance its budget. The long run result is likely to be

a) an interest rate of 10%

b) an inflation rate of 10%

c) a 10% increase in the velocity of money

d) a 10% growth rate of real GDP

e) a 10% increase in the national debt

4.Targeting interest rates and targeting the money supply are equivalent if (I,m not sure if a or d)

a) money demand is stable

b) banks hold no excess reserves

c) exchange rates are fixed

d) central banks practice inflation targeting

e) consumers exhibit rational expectations

5. For central governments is most OECD countries,

a) business taxes are the largest source of government revenue

b) Social Security contributions are smaller than taxes for other transfer programs

c) taxes on property income are the major source of government revenue

d) direct taxes on households raise more revenue than corporate taxes

e) lotteries generate more revenue than taxes