Starting from an Initial Long-Run Equilibrium, Under the Rational Expectations

question 112

Multiple Choice

Starting from an initial long-run equilibrium, under the rational expectations hypothesis, an anticipated shift to a more expansionary policy will increase

• A) prices but not real output in the short run.
• B) real output but not prices in the short run.
• C) real output in the long run but not in the short run.
• D) real output in both the long run and the short run.

Describe the role of consumer and producer surplus in determining market efficiency.

Recognize the effects of external costs and benefits on market outcomes and resource allocation.

Analyze the significance of the Coase theorem in resolving externality issues without government intervention.

Interpret market diagrams to analyze shifts in supply and demand due to government policies or externalities.

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Definitions:

Broken Glass

Fragmented pieces of glass often resulting from breakage, which can pose a safety hazard.

Source Amnesia

The inability to remember where, when or how previously learned information has been acquired, while retaining the factual knowledge.

False Recollection

The misremembering or distortion of a memory, often with high confidence in the inaccurate details.

Ferocious Dog

A highly aggressive and intimidating dog, often due to training, instinct, or poor socialization, that may pose a threat to humans or other animals.