Explain and demonstrate graphically the effects of a negative supply shock in both the short-run and long-run
What will be an ideal response?
See figure below.
The supply shock decreases short-run aggregate supply from AS1 to AS2, reducing real output and raising inflation rate, or from points 1 to 2 in the graph. In the long run, the supply curve eventually adjusts back to the original position as wages fall. The economy adjusts from 2 back to 1.
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Firms often seek to borrow money to expand their capital stock, and the price they pay for that money is the interest rate. What happens to the demand for money if the interest rate increases?
A. It increases. B. It decreases. C. It does not change. D. The quantity of money demanded will increase.
The mechanical reaper was invented by
A. Eli Whitney. B. The Marsh brothers. C. John Deere. D. Cyrus McCormick.
Suppose that one firm produces a product that results in negative external costs to society. This information suggests that
A) resources are under-allocated to the firm. B) the equilibrium market price of the product includes the external costs borne by society. C) resources are over-allocated to the firm. D) at the market price, quantity demanded is less than quantity supplied.
During 2016, Sean's consumption equals $25,000 and the change in his net worth is -$5,000. Sean's economic income for 2012 is
A. $5,000. B. $20,000. C. $25,000. D. $30,000.