Suppose the economy is at point 1 in Figure 13.1. With output below potential output, it might not be possible to create any expectation of an increase in inflation
How, then, might output be brought back to potential? What would this look like on the graph?
The reason output is so low is that the real interest rate at which the goods market is in equilibrium is negative. If expected inflation were high enough, the real interest rate could be low enough. An alternative to raising expected inflation is to persuade businesses and consumers to increase spending at every level of the real interest rate — that is, shift the IS curve to the right. An increase in autonomous spending, and/or a decrease in financial frictions both shifts AD to the right, and removes the kink, restoring the usual negative relationship between output and inflation. Nonconventional monetary policy can provide such a positive demand shock, increasing both output and the long-run equilibrium real interest rate. On the graph, the new aggregate demand curve might intersect the LRAS curve at an inflation rate somewhat lower than .
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The above figure shows the marginal social benefit and marginal social cost curves of doughnuts in the nation of Kaffenia. What is the marginal social cost of producing the 200th dozen doughnuts each day?
A) $10.00 per dozen B) $8.00 per dozen C) $6.00 per dozen D) $4.00 per dozen
One benefit to private sector production of a collective consumption good is _____
a. it overcomes the free riding problem b. private producers can often bundle the good with something else people value c. profits from private companies can be taxed d. provides information valuable in allocating future resources
Which of the following is true?
a. The production possibilities curve indicates that it will be impossible to expand total output with the passage of time. b. As long as resources are scarce, output cannot be increased. c. The size of the economic pie is fixed, and therefore, if one individual has more income, others must have less. d. Over time, the output of goods and services can be increased through human ingenuity and discovery of better ways of doing things.
An increase in the interest rate would reduce the present value of a property
Indicate whether the statement is true or false