Explain why some shifts to the aggregate demand curve are temporary and why some are permanent
What will be an ideal response?
In long-run equilibrium, aggregate expenditure, real GDP, and potential GDP are all equal, so aggregate expenditure cannot exceed potential GDP in the long run. If aggregate expenditures increase beyond potential GDP in the short run, shifting the aggregate demand curve to the right, they must decrease back to potential GDP in the long run, so the shift is temporary. So, changes in autonomous expenditure will cause a temporary shift of the aggregate demand curve.
Changes in the central bank reaction function cause the aggregate demand curve to shift permanently. For example, if the central bank announces a higher inflation target, it is announcing that it will accept a higher rate of inflation for any given level of real GDP. So, when real GDP equals potential GDP, the central bank is willing to accept a higher inflation rate. This allows for a permanent shift of the aggregate demand curve.
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The Herfindahl-Hirschman Index is one factor used to determine whether a merger between two firms should be allowed. Which of the following statements regarding the value of the Index for a given industry is true?
A) If a merger resulted in an Index of between 1,000 and 1,800, the industry would be considered competitive and the merger would not be challenged. B) If a merger would result in an Index value of 1,000 or more, the industry would be considered a monopoly and the merger would be challenged. C) If a merger would result in an Index value less than 1,000, the merger would not be challenged. D) If a merger would increase the Index by 100, the industry would be considered a monopoly and the merger would be challenged.
Which of the following events will cause a downward movement along the value of marginal product of labor curve?
a. An increase in wage rate b. An increase in price of the product c. A decrease in wage rate d. A decrease in price of the product
When the government has a budget surplus
a. it buys more of its bonds from the public than it sells to the public. b. it spends more than it receives in tax revenue. c. private saving is greater than zero. d. exports are greater than imports.
A bank may make loans until its
A) total liabilities are exhausted.
B) excess reserves are exhausted.
C) total assets are exhausted.
D) required reserves are exhausted.