Using a graph above, show the short-run and long-run effects of an expansionary monetary policy
What will be an ideal response?
In the above figure, E1 is the original equilibrium. The increase in the money supply causes the aggregate demand to increase due to the direct and indirect effects. Real GDP increases in the short run to $15 trillion and the price level increases to 120. Once input owners revise their expectations about prices, the short-run aggregate supply curve shifts to SRAS2, real GDP returns to $14 trillion, and the price level increases to 140. The long-run effect of the expansionary monetary policy is to increase the price level.
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The natural rate of unemployment is that rate at which the economy achieves its potential real GDP
a. True b. False Indicate whether the statement is true or false
In order to be successful in a market economy, entrepreneurs must
A) use only personal financial capital so they can avoid interest payments on borrowed funds. B) produce a good that consumers value less than the resources used to produce it. C) combine resources in a manner that increases their value. D) produce anything that consumers value, regardless of cost.
As the quantity of labor increases, the marginal product of capital
A) is constant. B) increases. C) decreases. D) may either increase or decrease.
Which of the following is not an example of derived demand?
a. More people want to plant gardens in the spring; therefore, demand for hoes and shovels increases then. b. Strong ticket sales for a concert cause the producers to schedule an extra show and demand more ushers. c. Increased use of robots leads to a decrease in demand for labor. d. The development of alternative fuels made from corn leads to an increase in demand for corn. e. Increasing demand for music leads to the construction of more recording studios.