Some economists argue that it is easier to resolve demand-pull inflation than it is cost-push inflation. Use the aggregate demand and aggregate supply model to explain this assertion.
What will be an ideal response?
By shifting aggregate demand leftward when the equilibrium occurs in the intermediate or classical range, the inflation rate should fall. This assumes that the price-level increase was due to demand factors only. It is possible to decrease aggregate demand by using tax policies which decrease consumer or business spending, or by using monetary policies which tighten the availability of credit for spending.
However, the factors which cause leftward shifts in the aggregate supply schedule (see Figure 29.6) are not as easy for government policy to control. Government cannot quickly change worker demands for higher wages; it cannot quickly increase productivity which would also bring down production costs; it cannot control the price of imported resources. These three factors have contributed much to cost-push inflation in the past, and help to illustrate the difficulty in controlling cost-push inflation.
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Refer to the above table. For which prices is demand unit-elastic?
A) in a range of prices below $6.50 B) in a range of prices above $6.50 C) in a range of prices between $5 and $10 D) in a range of prices between $6 and $6.50
When product A is a substitute for product B, the cross-price elasticity of demand for products A and B will be _____
a. unity b. negative c. positive d. decreasing e. increasing
Why is it unlikely for even a very successful investor to continuously outperform the market?
a. Different investors have different risk appetites. b. Individual investors have independent strategies. c. The stock market is not subject to sufficient government regulations. d. Investors often mimic the strategies of the successful investor. e. The market is always inefficient.
Those who believe that the federal government should make it a priority to balance its budget argue that
A. Running a budget deficit is never justifiable. B. Budget deficits cause real interest rates to be too low. C. Government debt incurred today will lower the living standards of future generations. D. Government debt held in private hands is a danger to national security. E. Taxes should always be assessed at the level of aggregate demand.