Explain how GDP would return to equilibrium if it was above or below equilibrium GDP.
What will be an ideal response?
If GDP were above equilibrium GDP, the total level of GDP produced would be greater than the level of spending it could generate. This difference means that businesses could not sell all of their stock of goods and inventories would increase. This situation would encourage businesses to cut back on production and GDP would decline back to equilibrium GDP.
If GDP were below equilibrium GDP, the total level of GDP is less than the amount of spending generated. This difference means that buyers are taking goods off the shelves faster than businesses could produce them. This situation, in turn, would encourage businesses to increase production, raising GDP back to equilibrium GDP.
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Starting from long-run equilibrium, an increase in autonomous investment results in ________ output in the short run and ________ output in the long run.
A. lower; potential B. higher; higher C. lower; higher D. higher; potential
If a freeze destroys oranges before they are harvested, the equilibrium price of an orange ________ and the equilibrium quantity ________
A) rises; increases B) rises; decreases C) falls; increases D) falls; decreases E) does not change; decreases
Attacking inflation through wage/price controls is part of a
a. orthodox stabilization strategy b. response to inertial inflation c. strategy supported by the International Monetary Fund d. response to rapid money supply growth e. none of the above
Having worked for many of the firms in the petroleum industry, you know that the price elasticity of demand for a representative firm is about ?1.25. An industry publication recently reported that the Rothschild index for the petroleum industry is estimated to be 0.88. Based on this information, you know that the price elasticity of demand for the firm you currently work for in the petroleum industry is:
A. ?1.10. B. 1.10. C. ?1.42. D. 0.704.