What happens if the economy is at its long-run equilibrium and aggregate demand increases?
What will be an ideal response?
The increase in aggregate demand means that the AD curve shifts rightward. Initially short-run aggregate supply does not change, so the SAS curve remains stationary. As a result, the price level rises and real GDP increases. The economy is an above-full-employment equilibrium. Eventually, however, the tight labor market leads to a rise in the money wage rate. When the money wage rate rises, short-run aggregate supply decreases and the SAS curve shifts leftward. The price level rises and real GDP decreases. In the long run, the short-run aggregate supply decreases so that real GDP returns to potential level of GDP and the only effect is that the price level is permanently higher.
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Refer to the above figure for the corn market. The government wants to set an effective price support in the corn market. To be effective the price should be set
A) below P1. B) at P1. C) at P2. D) at P3.
In the short run,
a. spending determines income, but not the other way around b. income determines spending, but not the other way around c. spending determines the interest rate, but not the other way around d. spending determines income, and income determines spending e. spending determines the productivity, and productivity determines spending.
For which of the following individuals would the opportunity cost of going to college be highest?
a. a promising young mathematician who will command a high salary once she earns her college degree b. a student with average grades who has never held a job c. a famous, highly-paid actor who wants to take time away from show business to finish college and earn a degree d. a student who is the best player on his college basketball team, but who lacks the skills necessary to play professional basketball
Which of the following is true about labor union effects on labor markets?
A. Approximately 90% of the wage difference between union and nonunion workers is due to the higher quality of union workers B. Labor unions have no documented impacts on labor markets because they are subject to the same labor market forces that other firms face C. The higher wages in the union sector tend to elevate wages indirectly across all sectors of the labor market D. Union labor tends to be less productive because the union protects its workers from discipline or firing