Refer to the above figure. Suppose the economy is in long-run equilibrium at point A, and the government initiates an expansionary monetary policy to increase aggregate demand. Which of the following is a TRUE statement concerning the differences between what happens when the central bank action is unanticipated and when it is anticipated?
A. The new long-run equilibrium is point C in either case. When the increase in aggregate demand is unanticipated, the new short-run equilibrium is point B, but when the increase in aggregate demand is anticipated the new short-run equilibrium is point D.
B. The new long-run equilibrium when the increase in aggregate demand is unanticipated is point B while the new long-run equilibrium when the increase in aggregate demand is anticipated is point A.
C. The new long-run equilibrium will be point C in either case. When the increase in aggregate demand is unanticipated, the economy moves to B in the short run, but when the increase in aggregate demand is anticipated, short-run aggregate supply shifts when the aggregate demand curve shifts, and the economy moves immediately to point C.
D. The new long-run equilibrium when the increase in aggregate demand is unanticipated is point B while the new long-run equilibrium when the increase in aggregate demand is anticipated is point C.
Answer: C
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The problem of determining for whom to produce exists because:
A) government regulations prevent firms from producing the kinds of goods that consumers want. B) a decision that one person or group will receive a good or service usually means that another person or group will not. C) taxes on firms make it more costly for them to produce all the goods that people want. D) taxes on consumers make it more difficult for them to buy all the goods they want.
Causality is clear and mechanical with the quantity theory of money. If M increases because:
A. V and Q are variable, the price level, P, increases. B. V and Q are variable, the price level, P, decreases. C. V and Q are constant, the price level, P, increases. D. V and Q are constant, the price level, P, decreases.
The minimum price the firm would accept in the long run would be
A. $25.
B. $50.
C. $60.
D. $70.
A dominant firm's residual demand curve is
A) the horizontal difference between the market demand curve and the supply curve of the fringe firms. B) the vertical difference between the market demand curve and the supply curve of the fringe firms. C) the demand curve left for the fringe firms after the dominant firm has determined an output level. D) None of the above.