Why do economists insist on emphasizing the difference between money and income? Why is this difference important in macroeconomics?
Money is a stock variable that has a value at a point in time. Income is a flow variable that has a value over a time span. The basis for the confusion is that nearly all income variables are measured in dollars, the unit of account function of money. The difference is important in macroeconomics because it is through changes in the money stock that the Fed affects real variables such as real GDP (national income), employment, and wealth.
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If the required reserve ratio is one-third, currency in circulation is $300 billion, and checkable deposits are $900 billion, then the money supply is ________ billion
A) $2700 B) $3000 C) $1200 D) $1800
If resource prices are fixed and the product selling price rises, then
a. profits will decrease. b. profits will increase. c. profits will remain constant. d. both profits and output will decrease.
Suppose an individual consumes just pizza and soda. Using a graph, explain how the substitution bias causes the Lespeyres price index to overstate the true change in the cost of living resulting from an increase in the price of pizza.
What will be an ideal response?
Monopolistic competition differs from perfect competition because in monopolistically competitive markets
a. there are barriers to entry. b. all firms can eventually earn economic profits. c. each of the sellers offers a somewhat different product. d. strategic interactions between firms are important.