Suppose the economy is initially in long-run equilibrium. For each of the shocks listed below, explain the short-run effects on output and the price level
(a) A stock market crash reduces consumers' wealth.
(b) Businesses decide to hold larger inventories.
(c) The government cuts defense spending.
(d) Foreign countries buy more U.S. goods.
(a) Output declines and the price level is unchanged.
(b) Output rises and the price level is unchanged.
(c) Output declines and the price level is unchanged.
(d) Output rises and the price level is unchanged.
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The production possibilities frontier illustrates
A) the maximum amount of inputs used to produce a particular output. B) the minimum amount of inputs used to produce a particular output. C) the maximum combination of two goods that can be produced with a given set of resources. D) the minimum combination of two goods that can be produced with a given set of resources. E) none of the above.
Refer to Figure 5-5. If, because of an externality, the economically efficient output is Q2 and not the current equilibrium output of Q1, what does D1 represent?
A) the demand curve reflecting social benefits B) the demand curve reflecting the sum of private and social benefits C) the demand curve reflecting private benefits D) the demand curve reflecting external benefits
Which of the following public policies is an example of a price ceiling?
A) Support prices for agricultural commodities B) Minimum wage laws C) Rent control program D) all of the above
A U.S. firm buys sardines from Morocco and pays for them with U.S. dollars. Other things the same, U.S. net exports
a. increase, and U.S. net capital outflow increases. b. increase, and U.S. net capital outflow decreases. c. decrease, and U.S. net capital outflow increases. d. decrease, and U.S. net capital outflow decreases.