Using Figure 9.1, explain what a firm would do in the short run if the market price of its product dropped below P1
What will be an ideal response?
The firm would shut down since it would be suffering an operating loss. For the firm to remain in business in the short run the price must be equal to or greater than the average variable cost.
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Exchange rate changes are
A) not very volatile because of offsetting changes in demand and supply. B) very volatile because supply and demand changes reinforce each other. C) infrequent because the exchange rate rarely changes. D) not very volatile because of government intervention. E) very volatile because of government intervention in the market.
Because GDP does not fully account for improvements in the quality of goods, the GDP calculation
a. tends to overstate the true value of output in the United States. b. tends to understate the true value of output in the United States. c. provides an accurate value of output in the United States. d. measures the value correctly because price changes always capture the value of quality changes.
Real GDP refers to:
a) the value of the domestic output after adjustments have been made for environmental pollution and changes in the distribution of income. b) GDP data that embody changes in the price level, but not changes in physical output. c) GDP data that reflect changes in both physical output and the price level. d) GDP data that have been adjusted for changes in the price level.
Which of the following is the LEAST common?
A) free trade areas B) currency unions C) currency crises D) nominal anchors