Exhibit 15-6 Aggregate demand and supply model
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In Exhibit 15-6, if the aggregate demand curve is at AD1, in order to reach the full-employment levl of GDP the government should:
A. raise taxes to move to AD2.
B. cut taxes to move to AD2.
C. cut taxes to move to AD3.
D. cut spending to move to AD2.
Answer: B
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Based on the figure above, if the firm produces 7 cans per day, the firm ________ maximizing its profit and is ________
A) is; incurring an economic loss B) is; making a normal profit C) is; making an economic profit D) is not; incurring an economic loss E) is not; making a normal profit
In the long run, if some monopolistically competitive firms are earning economic losses then
A) firms will leave the industry. B) raise prices until they earn economic profits. C) they will increase production until marginal costs fall. D) new firms will enter the industry.
The interest-rate effect
a. depends on the idea that decreases in interest rates increase the quantity of goods and services demanded. b. depends on the idea that decreases in interest rates decrease the quantity of goods and services demanded. c. is responsible for the downward slope of the money-demand curve. d. is the least important reason, in the case of the United States, for the downward slope of the aggregate-demand curve.
The demand for a product is likely to be more elastic:
A. the smaller the share of the total budget spent on the product. B. when more complementary products are available. C. in the short run than in the long run. D. when more good substitutes for the product are available.