At one time, policy makers interpreted the Phillips curve as offering a menu of inflation-unemployment choices. Today, the curve is no longer viewed this way. Why has the interpretation changed?
The original view stemmed from the effect of unexpected aggregate demand changes on inflation and unemployment. Policy makers thought they could reduce unemployment by increasing aggregate demand, albeit at the cost of higher inflation. But it is now recognized that these points are not sustainable. So in the long run, wages and other resource costs will adjust, pushing the economy toward the natural rate of unemployment. An increase in AD will lead to higher resource costs and an eventual decrease in short-run AS, resulting in a still higher price level and the loss of the additional jobs created in the short run.
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Marginal profit is negative when:
A) marginal revenue is negative. B) total cost exceeds total revenue. C) output exceeds the profit-maximizing level. D) profit is negative.
Equilibrium in the market for funds occurs when the
a. lenders and borrowers are mutually satisfied at some interest rate. b. marginal revenue product of investment using the funds equals the interest rate. c. demand curve for funds and the supply curve for funds intersect. d. All of the above are correct.
The law of diminishing marginal utility implies that total utility never reaches a maximum.
Answer the following statement true (T) or false (F)
The quantity theory of money was derived from the quantity equation by asserting that
A) real output was fixed. B) the money supply was fixed. C) the velocity of money was zero. D) the velocity of money was fixed.