Explain why the short-run aggregate supply curve has a positive slope.
What will be an ideal response?
The short-run aggregate supply curve shows an upward-sloping relationship between current inflation and the quantity of output. Producers increase the quantity of output supplied as inflation rises because the prices of the factors used as inputs in production tend to be fixed in the short run (in nominal terms) and so inflation reduces the real cost. Put another way, in the short term, production costs don't change much, so when retail prices rise firms increase the quantity supplied in order to take advantage and make higher profits.
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When in 1985 a British pound cost approximately $1.30, a Shetland sweater that cost 100 British pounds would have cost $130. With a weaker dollar, the same Shetland sweater would have cost
A) less than $130. B) more than $130. C) $130, since the exchange rate does not affect the prices that American consumers pay for foreign goods. D) $130, since the demand for Shetland sweaters will decrease to prevent an increase in price due to the stronger dollar.
The twin responsibilities of the Federal Reserve is called the:
A. double duty. B. two tasks. C. dual mandate. D. twin spin.
In the figure above, households
A) receive transfers directly from governments. B) buy goods and services from governments in goods markets. C) receive transfers from governments through factor markets. D) sell factors of production to governments. E) pay taxes to governments through factor markets.
Which of the following cannot be determined from a nation's position relative to its production possibilities frontier?
a. whether it is producing efficiently b. whether it has unemployed resources c. the opportunity cost of each good illustrated d. the society's relative preferences regarding each good illustrated e. the price of each good illustrated