Explain why funds available to pay the fixed inputs are equal to the area of the triangle below the value of marginal product of labor (VMP) and above the wage
The intersection of the VMP and the wage determines the number of workers to be hired. Hence the rectangular area bound by the wage and the number of workers employed at that wage rate give the firm's expenditure on its variable input, i.e. labor. The triangular area above the wage line and below the VMP is therefore the funds that the firm has left to use on its fixed inputs.
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The appropriate monetary policy in the event of a recessionary gap would be to
A) raise the required reserve ratio. B) increase the difference between the federal funds rate and the required reserve ratio. C) engage in an open market purchase of U.S. government securities. D) increase the difference between the discount rate and the federal funds rate.
Countries without well-developed financial systems are able to sustain high levels of economic growth
Indicate whether the statement is true or false
Which of the following best describes the cause-and-effect chain of a restrictive monetary policy?
A. A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. B. An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. C. An increase in the money supply will lower the interest rate, decrease investment spending, and increase aggregate demand and GDP. D. A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP.
Based on our understanding of the IS-LM model that takes into account dynamics, we know that a reduction in government spending will cause
A) an immediate drop in Y and immediate increase in i. B) an immediate reduction in i and no initial change in Y. C) a gradual reduction in i and gradual reduction in Y. D) a gradual reduction in i and an immediate reduction in Y.