To achieve long-run equilibrium in an economy with a recessionary gap, without the use of stabilization policy, the inflation rate must:
A. not change.
B. increase.
C. decrease.
D. either increase or decrease depending on the relative shifts of AD and AS.
Answer: C
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Half of all your potential customers would pay $16 for your product but the other half would only pay $10 . You cannot tell them apart. Your marginal costs are $4 . If you set the price at $10, the expected profit is:
a. $3 b. $4 c. $5 d. $6
Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the
a. money supply to fall. To reduce the impact of this the Fed could sell Treasury bonds. b. money supply to fall. To reduce the impact of this the Fed could buy Treasury bonds. c. money supply to rise. To reduce the impact of this the Fed could sell Treasury bonds. d. money supply to rise. To reduce the impact of this the Fed could buy Treasury bonds.
If climate change starts creating earthquakes, storms, droughts and all manner of obstacles to production operations, the effects can be shown on effected production function graphs by
A. eliminating long run production functions because they are irrelevant. B. changing the curves of the isoquants to straight lines. C. lowering the short run production function and reducing the numbers on each isoquant. D. eliminating the increasing returns portion of the short run production function.
An economy produces capital goods and consumer goods. This economy is operating at a point on its production possibility frontier associated with a small amount of capital goods and a large amount of consumer goods. This is most likely to be a
A. country with a command economy. B. "rich" country because such a nation can afford to sacrifice. C. country with a free market. D. "poor" country because such a nation has difficulty devoting many resources to the production of capital goods.