To achieve long-run equilibrium in an economy with a recessionary gap, without the use of stabilization policy, the inflation rate must:
A. not change.
B. increase.
C. decrease.
D. either increase or decrease depending on the relative shifts of AD and AS.
Answer: C
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Sugar price supports ensure an abundance of sugar, and hence reasonable prices for consumers.
Answer the following statement true (T) or false (F)
How does a firm that is losing money in the short run decide whether to shut down or continue to produce to minimize its losses?
A sum of money to be received in the future is worth more than a sum of money today.
Answer the following statement true (T) or false (F)
A mathematical technique used to solve constrained optimization problems (finding the consumer optimum, for example) is:
A) the method of Lagrange multipliers. B) the Cobb-Douglas method. C) the Slutsky method. D) the Hicks substitution method.