Explain how the aggregate demand and aggregate supply model can be made more dynamic
What will be an ideal response?
We can make the aggregate demand and aggregate supply model dynamic rather than static by making three changes to the basic model. First, potential real GDP increases continually because the long-run aggregate supply curve continually shifts to the right. This is because workers are continually entering the labor force, technological change occurs, and the economy accumulates machinery and tools. Second, aggregate demand increases during most years. This is because population and income increases over time. Finally, the short-run aggregate supply curve shifts to the right, except for periods of time when workers and firms expect high rates of inflation.
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Refer to Table 12-1. Suppose the fixed cost of production rises by $500 and the price per unit is still $8. What happens to the firm's profit-maximizing output level?
A) It must rise to offset the increased cost. B) It must fall. C) The firm will shut down. D) It will remain the same.
Deficit financing tends to change the mix of output in the direction of more
A. Business sector goods. B. Public sector goods. C. International sector goods. D. Private sector goods.
What primary function is money serving when you keep it in a bank account until you need it to purchase a product?
A. A double coincidence of wants. B. A medium of exchange. C. A unit of account. D. A store of value.
Which of the following describes the difference between "scarcity" and "shortage"?
A) There is no difference; either word can be used to describe the situation that exists when there is less of a good or service available than people want. B) In the economic sense, almost everything is scarce. A shortage of a good or service occurs when the quantity demanded is greater than the quantity supplied at the current market price. C) There is a shortage of almost everything. Scarcity occurs only if the quantity demanded of a good or service is greater than the quantity supplied at the current market price. D) In the economic sense, almost everything is scarce. A shortage of a good or service occurs when the quantity demanded is greater than the quantity supplied at the equilibrium price.