Refer to the diagram, in which Q f is the full-employment output. If aggregate demand curve AD 3 describes the current situation, appropriate fiscal policy would be to:
A. do nothing since the economy appears to be achieving full-employment real output.
B. increase taxes and reduce government spending to shift the aggregate demand curve leftward from AD 3 to AD 2 , assuming downward price flexibility.
C. increase taxes on businesses to shift the aggregate supply curve rightward to reduce the
price level.
D. increase taxes and reduce government spending to shift the aggregate demand curve from
AD 3 to AD 1
B. increase taxes and reduce government spending to shift the aggregate demand curve leftward from AD 3 to AD 2 , assuming downward price flexibility.
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The process of allocating the total product among the resources involved is referred to as
a. geographic distribution. b. functional distribution. c. marketing distribution. d. frictional distribution.
Refer to above figure. Two countries exist in this model, P and R. P is relatively labor (L) abundant, as is evident in the bottom right horizontal axis
If Country P were to be completely specialized in the labor-intensive product, C, it would be producing at point 4. In fact, it produces both C and P, at point 5. The (autarky) relative price of C (in terms of F) of Country P is at point 3; and of Country R at point 1. If trade were to open up between these two countries, which would export C and which would export F? Is this consistent with the Heckscher-Ohlin model? Explain.
One advantage of a managed float exchange rate system compared to a floating exchange rate system is
A) it allows the exchange rate to reflect demand and supply in the market. B) there is no need for government intervention. C) it allows greater exchange rate stability. D) it eliminates the possibility of depreciation during a recession.
In the economic world of production, there are either price makers or price takers. By price takers we mean that
a. firms buy goods as well as sell them, and when they buy goods at whatever price, they play the role of "takers" b. firms take control of their own markets, charging whatever price they think the market will bear c. firms take the market price as given d. firms create the price and consumers either take it or leave it e. the market takes whatever price the firms charge, which is how the downward-sloping demand curve is created