Analyze the short-run and long-run effects of an unanticipated decrease in the money supply in the misperceptions model. Tell what happens to output, the price level, and the expected price level in both the short run and long run
What will be an ideal response?
The reduction in money supply shifts the AD curve left, reducing output and the price level, while the expected price level is unchanged, since the decrease in money supply was unanticipated. In the long run, the SRAS curve shifts down as people reduce their expected price level. The economy returns to full-employment output, but at a lower price level.
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Evaluate the following statement. "The nation of Berundi has an absolute disadvantage in the production of everything compared to the United States. Therefore, the United States will have no reason to trade with Berundi"
What will be an ideal response?
Consider two resource markets in which the demand curves slope downward. In market A, the supply curve is horizontal, equilibrium price is $6, and 100 units of the resource are hired. In market B, the supply curve is vertical, equilibrium price is $20, and 30 units of the resource are hired. Which of the following is true?
a. Total resource earnings are the same in both markets. b. Total resource earnings are greater in market A. c. Total resource earnings are greater in market B. d. There is more economic rent in market A. e. There is derived demand in market A, but not in market B.
To say that government intervenes in the economy to promote equality is to say that government is aiming to
a. create a more fair distribution of income. b. change the ingredients that are used to "bake" the economic pie. c. enlarge the economic pie. d. All of the above are correct.
Factors of production are
a. used to produce goods and services. b. also called output. c. abundant in most economies. d. assumed to be owned by firms in the circular-flow diagram.