Explain the importance of the shape of supply curve for undertaking stabilization policies.
What will be an ideal response?
If the aggregate supply curve is flat, expansionary fiscal or monetary policy that raises the aggregate demand curve can buy large gains in real GDP at low cost in terms of inflation. Conversely, when the supply curve is flat, a restrictive stabilization policy is not a very effective way to bring inflation down. Instead, it serves mainly to reduce real output. If the aggregate supply curve is steep expansionary fiscal or monetary policies will cause a good deal of inflation without boosting real GDP much. Contractionary policy is an effective way to bring down the price level without much sacrifice of output.
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What is the slope of the line in the graph?
A) +1/2 B) -1/2 C) +2 D) -2 E) -3/4
Measured as a share of GDP, the net federal debt
a. increased during the 1990s, but fell sharply during 2001-2011. b. fell during most of the 1990s, but rose sharply during 2001-2011. c. was virtually unchanged during the 1990s, but fell sharply during 2001-2011. d. fell during the 1990s, but was virtually unchanged during 2001-2011.
It is better to pool risks because you can:
A. increase your income. B. reduce your expected income but increase its standard deviation. C. increase your expected income. D. reduce the variability of expected income.
A competitive firm sells its output for $30 per unit. Is the firm's marginal revenue less than, equal to, or greater than $30?