A temporary decrease in the price of oil would be considered a:
A. long-run supply shock.
B. demand shock.
C. short-run supply shock.
D. The changing price of oil would not affect any of these.
Answer: C
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Which of the following is correct about a consumer's optimization problem:
A. In order for a consumer to not be optimizing at a corner solution, it is necessary for us to assume that all goods are essential. B. In order for a consumer to not be optimizing at a corner solution, it is sufficient for us to assume that all goods are essential. C. In order for a consumer to not be optimizing at a corner solution, it is necessary and sufficient for us to assume that all goods are essential. D. None of the above.
While the classical economists believed that both velocity and output are stable, Keynesians believe:
a. velocity and output are both variable. b. output is stable and velocity is variable. c. the same as the classical economists that both output and velocity are stable. d. velocity is stable and output is variable.
Sometimes the response to price signals, rather than the signals themselves, may be flawed.
Answer the following statement true (T) or false (F)
In the short run, an increase in the price level induces firms to expand production because
A. higher prices allow firms to hire more inputs by offering higher prices for inputs, which increases productivity and profits. B. prices of inputs are held constant, so the higher prices for firms' products imply that it is profitable to expand production. C. each firm must keep its production level up to the level of its rivals, and some firms will expand production as the price level increases. D. they can increase profits by increasing maintenance costs.