Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in long-run macroeconomic equilibrium. For Year 2, graph aggregate demand, long-run aggregate supply, and short-run aggregate supply such that the condition of the economy
will induce the Federal Reserve to conduct an expansionary monetary policy. Briefly explain the condition of the economy and what the Federal Reserve is attempting to do.
What will be an ideal response?
The Federal Reserve conducts an expansionary monetary policy to increase real GDP to potential real GDP. In the graph below, the economy would move from point A in Year 1 to point B in Year 2 without any expansionary monetary policy. At point B, real GDP is below potential real GDP. The Fed would increase the money supply and lower interest rates to stimulate aggregate demand, trying to push the economy to reach potential real GDP.
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Total producer surplus in a market is measured as the
A) area bounded above the market clearing price and beneath the market demand curve. B) area bounded below the market clearing price and above the market supply curve. C) vertical distance from the horizontal (quantity) axis to the market clearing price. D) horizontal distance from the vertical (price) axis to the equilibrium quantity.
Producer surplus from a unit of output is the difference between the market price and the seller's cost of producing that unit
a. True b. False Indicate whether the statement is true or false
Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase revenue?
a. 0 b. 0.4 c. 1 d. 4
Juanita is trying to convince the owner of a jewelry store to hire her. She argues that she could help the shop sell an additional three rings per day for a profit of $20 each. If the facts are not in dispute, but the owner does not hire her, then
a. the wage rate must be less than $60 per day. b. hiring Juanita would involve a negative marginal product. c. the wage rate must be more than $60 per day. d. the wage rate must be less than $20 per day.