The potential output of an economy is the level of output produced when the
a. real wage equals the nominal wage.
b. price level is constant.
c. expected real wage equals the inflation rate.
d. expected price level equals the unemployment rate.
e. expected price level equals the actual price level.
E
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Exports ________ society's total surplus because of the ________ in price and ________ in production
A) increase; rise; increase B) increase; rise; decrease C) decrease; fall; increase D) decrease; fall; decrease E) increase; fall; increase
The extent to which output responds to all inputs is referred to as
a. incremental capital-output ratio b. returns to scale c. indivisibilities d. gestation period e. none of the above
Individual investors can reduce transactions costs by
A) buying common stock rather than bonds. B) combining their purchases through an intermediary. C) common stocks directly, rather than through a mutual fund. D) making loans directly, rather than depositing funds in a bank.
Smyth Industries operated as a monopolist for the past several years, earning annual profits amounting to $50 million, which it could have maintained if Jones Incorporated did not enter the market. The result of this increased competition is lower prices and lower profits; Smyth Industries now earns $10 million annually. The managers of Smyth Industries are trying to devise a plan to drive Jones Incorporated out of the market so Smyth can regain its monopoly position (and profit). One of Smyth's managers suggests pricing its product 50 percent below marginal cost for exactly one year. The estimated impact of such a move is a loss of $1 billion. Ignoring antitrust concerns, compute the present value of Smyth Industries' profits, if it could have remained a monopoly when the interest rate
was 5 percent. A. $200 million B. $100 million C. $1.05 billion D. $210 million