What causes the aggregate supply curve to have an upward slope in the short run, but a vertical slope in the long run?
When there is substantial unemployment in the economy and the economy is operating well below the level of full employment, firms can hire more resources, including labor, to increase production without having to raise prices for inputs or wages. The assumption is that prices of inputs are relatively fixed in the short run. Therefore, as prices increase, a firm's profits will rise on a per unit basis and firms will have an incentive to increase production.
In the long run, the economy is at full employment. In this case, there are no extra workers to be found and limits to overtime work are reached. No more increases in output are possible and the aggregate supply curve becomes very steep or vertical.
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What will be an ideal response?
Suppose that during a given time period the implicit cost for a business was $1,000 and that the explicit cost was $5,000. Also suppose that the firm sold 1,000 units of its products at $5 per item. We can conclude that the firm's
A) accounting profit was $5,000, and its economic profit was $0. B) accounting and economic profits were both $0. C) accounting profit was $0, and economic profit was $1,000. D) accounting profit was $0, and economic profit was -$1,000.
If the price level in the current period is lower than what buyers and sellers anticipated,
a. profit margins will be unattractive, and firms will expand output. b. profit margins will be unattractive, and firms will reduce output. c. profit margins will be attractive, and firms will expand output. d. profit margins will be attractive, and firms will reduce output.
The following figures are for the banking system. Deposits at the central bank = 400 U.S. Government Securities = 600 Transactions Deposits = 1,700 Loans = 800 Stockholder's Equity = 70 Other Assets = 450 Other Liabilities = 380 Borrowing from the Federal Reserve = 250 Cash in the Vault = 150 The reserve ratio on transactions deposits = 10% Currency in circulation = 10 The monetary base equals:
a. A multiple of 80 b. A multiple of 250 c. 560 d. Cannot be determined with this information. e. 1,700