What are some reasons why coordination of economic affairs through the price system may not work perfectly?
What will be an ideal response?
There are a number of correct answers here, but three principal reasons are that there may be too few prices (that is, more markets than prices), prices may not contain sufficient information, and prices may be "sticky."
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A small economy increased its capital per hour worked (K/L) from $40,000 to $50,000. As a result, real GDP per worker (Y/L) grew from $20,000 to $25,000
If the economy increases its capital per hour worked by another $10,000 to $60,000, but there is no change in technology, by how much more and in what direction will output per worker change? A) Output per worker will increase by less than $5,000. B) Output per worker will increase by exactly $5,000. C) Output per worker will fall by more than $5,000. D) Output per worker will increase by more than $5,000.
If interest rates increase from 9 percent to 10 percent, a bank with a duration gap of 2 years would experience a decrease in its net worth of
A) 0.9 percent of its assets. B) 0.9 percent of its liabilities. C) 1.8 percent of its liabilities. D) 1.8 percent of its assets.
In the long run, an increase in the money supply
a. leaves prices and unemployment unchanged. b. raises prices and unemployment. c. raises prices and leaves unemployment unchanged. d. leaves prices unchanged and reduces unemployment.
For complements:
A. price elasticity of income is positive. B. price elasticity of income is negative. C. cross-price elasticity of demand is negative. D. cross-price elasticity of demand is positive.