Describe the process that occurs with demand-pull inflation in the extended aggregate demand and aggregate supply model.
What will be an ideal response?
Assume that the economy is initially in equilibrium at the full-employment level of real output. If the price level rises because of an increase in aggregate demand, then this event will cause a movement along the short-run aggregate supply curve. The revenues and profits of firms increase because nominal wages and the prices of other resources are fixed. Employment and output will increase beyond the full-employment level to a temporary equilibrium. In the long run, once workers and resource suppliers realize that the price level has risen they will want higher prices for their resources. When these higher payments are made, the short-run aggregate supply curve will shift to the left. This change will eventually result in a new equilibrium at a higher price level with real output and employment returning to its full-employment level.
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Countries should specialize and import goods in which they have a comparative disadvantage
a. True b. False Indicate whether the statement is true or false
Figure 8-1
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Given the scatter diagram in Figure 8-1, what is the MPC (your best estimate)?
A. 1/2 B. 1/3 C. 2/3 D. 1
At the conclusion of its meeting on January 27, 2016, the Federal Open Market Committee released a statement that included the following sentence: "Given the economic outlook, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and return to 2 percent inflation ." What is the significance of this statement?
What will be an ideal response?
Government policy can potentially raise economic well-being
a. in all markets for goods and services. b. in economic models, but not in reality. c. when a good does not have a price attached to it. d. never.