After some tornadoes in Alabama, unemployment is low as there is a great deal of construction work and businesses run at full capacity. This suggests that
A. the economy is operating below its long-run level and living standards are less than they would have been without the hurricane.
B. living standards are falling as employment and economic activity are too high.
C. the economy is operating above the full-employment level and will eventually adjust back to long-run aggregate supply.
D. the hurricane is beneficial since it is increasing employment and replacing less efficient capital with newer and more efficient capital.
Answer: C
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Indicate whether the statement is true or false
Using the AD-AS model, if consumers and business become more optimistic about the future direction of the economy and increase spending, then:
a. aggregate demand will decrease. b. aggregate demand will increase. c. long-run aggregate supply will increase. d. long-run aggregate supply will decrease.
If a firm’s average cost is declining, setting price equal to marginal cost will
A. maximize the firm’s profits. B. minimize the firm’s losses. C. guarantee that the firm will lose money. D. help the firm earn the opportunity costs of its resources.
Suppose the long-run supply curve for a good is upward-sloping. The upward slope could be explained by
a. increases in production costs resulting from more firms coming into the market. b. a breakdown of the "free entry and exit" feature of competition. c. a breakdown of the "price taking" feature of competition. d. a stable demand curve for the good, that is, a demand curve that never shifts.