Use an aggregate demand–aggregate supply analysis to explain the impact of the public’s expectations of severe inflation on real domestic output and the price level.
What will be an ideal response?
The answer depends partly on where the economy is at the beginning of this change. Assuming that inflation was already a problem, then increased expectations would cause the demand curve to shift further rightward, adding to the demand-pull type of inflation.
The effect on aggregate supply would also be to worsen inflation from the cost-push perspective. People would want higher wages and salaries now to compensate them for the expected inflation of the future. Unless productivity rose at the same rate, these demands for higher incomes would push up labor costs of production which would shift the supply curve to the left. As this happens the new equilibrium would be not only at a higher level of inflation, but also at a lower level of employment. In other words, this leftward shift could offset any possible increase caused by the rightward shift in aggregate demand. The only certainty is that expectations of severe inflation add to the probability of severe inflation because of the behavior of consumers and wage earners.
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A) rise; shift up B) rise; shift down C) fall; shift up D) fall; shift down
A game in which any gains within the group are exactly offset by equal losses by the end of the game is a
A) positive-sum game. B) zero-sum game. C) strategy. D) negative-sum game.
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a. is not likely to be concerned about new entrants eroding its monopoly power. b. is taking advantage of diseconomies of scale. c. would experience a lower average total cost if more firms entered the market. d. All of the above are correct.
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A. does not make sense because college students are risk lovers by nature and would make false claims. B. is false because the stigma of the newcomer will exclude freshman from the service. C. makes sense because a campus has many close relationships so exaggerated claims would be easily exposed. D. makes sense because college students are risk averse by nature and would not make claims that could get them in trouble.