How does real GDP change in the long run when autonomous expenditure increases? Does real GDP change by the same amount as the change in aggregate demand? Why or why not?
What will be an ideal response?
In the long run, an increase in aggregate expenditure has no effect on real GDP, that is, real GDP does not change. The change in real GDP—zero—is less than the change in aggregate demand. The change in real GDP is nil because, in the long run, the economy returns to its full-employment equilibrium. In the long run, an increase in aggregate expenditure raises the price level but has no effect on real GDP.
You might also like to view...
The metaphor used to describe the working of the price system to achieve efficiency in a free market is
a. Occam's razor. b. the prisoner's dilemma. c. the invisible hand. d. the benefit principle.
You shop at the local drugstore because it is convenient. This situation is best described as:
a. a market with horizontal demand. b. monopolistic competition with differentiation by location. c. differentiation by a cartel. d. differentiation by style or type.
If inflation does not adjust rapidly in the short run, then when the Federal Reserve increases the nominal interest rate, the real interest rate in the short run will:
A. not change. B. decrease. C. increase. D. be determined by saving and investment decisions.
Which two factors make regulating mergers complicated?
A) First, firms may lobby government officials to influence their decision to approve the merger. Second, by the time the government officials reach a decision regarding the merger, the firms often decide not to merge. B) First, the time it takes to reach a decision to approve a merger is so long that the firms often have new owners and mangers. Second, by law, government officials are not allowed to consider the impact of foreign trade (exports and imports) on the degree of competition in the markets of the merged firms. C) First, the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice must both approve mergers. Second, the concentration ratios that are used to evaluate the degree of competition the merged firms face are flawed. D) First, it is not always clear what market firms are in. Second, the newly merged firm might be more efficient than the merging firms were individually.