The degree of responsiveness of aggregate output to a price change declines as the:
a. rate of savings increases.
b. economy approaches its maximum potential output.
c. level of real GDP declines over time.
d. the price elasticity of imports declines.
e. the excess capacity of all the firms in the economy increases over time.
b
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Why is the competitive equilibrium price often referred to as the market clearing price?
What will be an ideal response?
If the Federal Reserve announces that its target for the federal funds rate is falling from 3 percent to 2.25 percent, how do you expect workers and firms to react?
A) As long as the Fed's announcement is credible, workers and firms will increase their consumption and investment spending, which will increase aggregate demand and inflation. B) As long as the Fed's announcement is credible, workers and firms will decrease their consumption and investment spending, which will decrease aggregate demand and inflation. C) Workers and firms will incorporate the decrease in interest rates into their expectations of inflation, and they will expect inflation to fall as a result of Fed's policy announcement. D) If the Fed's announcement is not credible, workers and firms will not expect inflation to rise so they will increase their consumption and investment spending, which will decrease aggregate demand and increase inflation.
If i is the yield to maturity of a fixed-payment loan,
A) the value of the loan today equals i times the sum of the values of all the loan payments. B) i equals the present value of the loan payments. C) the value of the loan today equals the sum of the values of the loan payments. D) the value of the loan today equals the present value of the loan payments discounted at rate i.
If the Fed increases the discount rate, it is pursuing
A) a contractionary policy because it will be more costly for banks to borrow funds and this puts upward pressure on interest rates in the economy. B) a contractionary policy because it reduces banks' profit margins by raising the cost of borrowing and lowering the return on lending. C) an expansionary policy because it raises the cost of holding excess reserves in the banking system. D) an expansionary policy because it increases bank profits by putting upward pressure on the interest rates that banks can charge on its loans