How does the self-correcting mechanism act to pull the economy out of a recession?
During a recession (when actual output is below potential output), weak resource demand and high unemployment place downward pressure on prices in the resource market. As resource prices fall, the profit rates of firms increase, and firms begin to expand output. This expansion draws the economy back toward full employment and out of the recession. Graphically, this is represented by a shift in SRAS to the right. In addition, weak demand for investment will place downward pressure on interest rates. In turn, the lower interest rates will stimulate aggregate demand (shift AD to the right). This will also help direct the economy back to full-employment equilibrium.
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The demand curve facing a monopolist is perfectly elastic
a. True b. False
Nate collected Social Security payments of $220 a month in 1985 . If the price index rose from 90 to 108 between 1985 and 1986, then his Social Security payments for 1986 should have been
a. $228. b. $238. c. $257. d. $264.
The Board of Governors of the Federal Reserve System has
A) 12 members appointed by the president of the United States. B) seven members appointed by the president of the United States. C) seven members appointed to life terms. D) seven members elected by the public. E) 12 members elected by the public.
If the quantity demanded of hamburgers increases by 20 percent when the price decreases by 5 percent, then the price elasticity of demand is
A) 0.25. B) 4.0. C) 20.0. D) 5.0.