Why do policymakers sometimes use policies to limit growth?
What will be an ideal response?
Policymakers sometimes use policies to limit growth because factors such as irrational optimism about the economy lead to unsustainable expansion. Left alone, unsustainable expansions can subsequently lead to very severe downturns because irrational optimism can implode suddenly and severely due to multiplier effects. Contractionary policy attempts to reduce this risk of a sudden and extreme contraction by putting gradual left ward pressure on the labor demand curve when policymakers think it is moving too quickly to the right.
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In the short run, a perfectly competitive firm determines its profit-maximizing or loss-minimizing output by
a. producing at full capacity. b. equating price and marginal revenue. c. equating marginal revenue and marginal cost. d. equating average revenue and average cost.
If a demand shock causes the economy to move to a real GDP level that is below its full employment level, then
a. we refer to this as a positive demand shock. b. the economy will remain at this point in the long run. c. the AS curve will adjust in the long run until the economy returns to full employment. d. the AD curve will move back to its original position in the long run. e. the unemployment rate will decline.
Exhibit 4-1 Supply and demand data Price Quantitydemanded Quantitysupplied $1.00 500 50 1.50 450 150 2.00 400 250 2.50 300 300 3.00 150 350 In Exhibit 4-1, suppose that a reduction in the price of an important input used to produce the good causes an increase in quantity supplied of 150 units at every price level. Assuming that demand does not change, the new equilibrium price will be:
A. $1.00. B. $1.50. C. $2.00. D. $2.50.
Which of the following costs do not change when output changes in the short run?
A. Variable costs. B. Average fixed costs. C. Fixed costs. D. Average variable costs.