Use the classical (RBC) IS-LM-FE model to show the effects on the economy of a temporary beneficial supply shock; for example, a decrease in the price of oil. You should show the impact on the real wage, employment, output, the real interest rate, consumption, investment, and the price level.
What will be an ideal response?
The marginal productivity of labor is increased, shifting the labor demand curve to the right. As a result, the real wage rises and employment increases. Both the higher productivity and increased employment increase output. The FE line shifts right, with the IS curve unchanged, so the LM curve must shift down (the price level declines) to restore equilibrium. As a result, the real interest rate declines, increasing consumption and investment.
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The economizing process (choosing from among alternatives to maximize benefits)
A) applies only to consumers. B) applies only to privately-owned firms. C) applies only to producers. D) is the same for producers as it is for consumers.
In the figure above, if no one owns the lake, what is the equilibrium price of the pesticide?
A) $80 per ton B) $40 per ton C) $60 per ton D) $30 per ton
Which of the following is true?
a. Nations achieve high rates of economic growth primarily because of their natural resource endowments. b. Human and physical capital investments are largely irrelevant to economic growth. c. Poor nations grow slowly because they do not have access to modern technology. d. A favorable political environment attracts more investment in human and physical capital.
________ holds that those with equal ability to pay should bear equal tax burdens.
A. Vertical equity B. The benefits-received principle C. Progressive tax theory D. Horizontal equity