The economy's self-correcting mechanism tends to push the unemployment rate back to a specific rate of unemployment. How?
If the economy is facing a recessionary gap, then it results in a) equilibrium output which will be below potential GDP, and b) the economy will have industrial capacity and unsold output, so the inflation will be under control. At the same time, the availability of unemployed workers eager for jobs will reduce wages as well as the cost of production. These lower costs, in turn, stimulate greater production and unemployment will be back on its long run level, i.e., natural rate of unemployment. The same process will work in the opposite direction if the economy is facing inflationary gap.
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The reason externalities distort the allocation of resources is that
a. too few goods are usually produced. b. firms often go out of business because of the externality. c. a firm's private costs do not reflect the social cost of production. d. regulating externalities uses scarce resources.
If the discount rate is 5 percent, the present value of annual $100,000 payments in perpetuity (i.e., continued indefinitely into the future) is
a. $2,000,000 b. $1,246,296 c. $1,000,000 d. $976,463 e. infinite
If there were four firms in an industry each with a 25% market share, what would the Herfindahl-Hirschman Index equal?
a. 2500 b. 1250 c. 1,000 d. 625
The price of peanuts drops from 50 cents to 25 cents per pound. How and why might an individual and a group of 1,000 people respond to this price drop very differently?
What will be an ideal response?