Assume that the economy is in equilibrium when the real interest rate rises. Explain, step-by-step, how the components of expenditure adjust to bring the economy to its new equilibrium
What will be an ideal response?
An increase in the real interest rate reduces consumption, investment, and net exports. Reduced expenditures cause an unplanned inventory adjustment to which firms respond by reducing output. The economy is moving to the left along the IS curve. The slope of the IS curve reflects the further output declines that occur as consumption falls in response to declining output, until the change in consumption has converged to zero (the marginal propensity to consume is less than one).
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________ believed that wages would resist falling during economic downturns.
A. Keynes B. Both Keynes and classical macroeconomic theorists C. Neither Keynes nor classical macroeconomic theorists D. Classical macroeconomic theorists
A tax inversion merger ________ legally reduce the combined firms' taxes and these mergers ________.
A) can; are only horizontal mergers B) cannot; are only vertical mergers C) can; can be horizontal or vertical mergers D) cannot; can be horizontal or vertical mergers
According to the graph shown, if the market is in equilibrium, producer surplus is area:
A. A.
B. A + B + C.
C. A + B + C + D + E.
D. D + E.
An increase in labor productivity necessarily means an increase in real GDP per capita if: a. real GDP increases
b. the employment growth rate is greater than the population growth rate. c. the employment growth rate is less than the population growth rate. d. the size of the labor force remains constant. e. real GDP increases more rapidly than nominal GDP.