In the long run, following a combination of a negative demand shock and a temporary negative supply shock,
A) both inflation and output return to the original long-run equilibrium values.
B) inflation is permanently increased, while output returns to potential output.
C) output returns to potential output, while inflation may be higher or lower than its initial value.
D) inflation is permanently reduced, while output returns to potential output.
E) None of the above.
D
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The Consumer Price Index includes
A. the top selling 50 goods and services each month. B. all of the goods and services produced in the economy. C. only goods and services produced domestically. D. goods and services from 8 major categories.
Which of the following is likely to happen if the government imposes a tariff?
A) Domestic producers will be worse off. B) Domestic producers will face higher foreign competition. C) Domestic producers will face fewer foreign competitors. D) Domestic consumers will be better off.
If inflationary expectations are based on all available information, they are referred to as
A) optimal. B) rational. C) adaptive. D) informed.
At Olive’s Oranges customers may pick oranges from a 100-tree orchard at the price of 15¢ per orange. Olive’s orchard currently produces 8,000 oranges annually. Olive estimates that installing a new irrigation system would increase her annual yield by 200 oranges, beginning next year. The irrigation system requires an immediate cost of $600.
(i) Calculate the marginal product of capital for the irrigation system. Express your answer as a percentage of the cost of the capital. (ii) Suppose the interest rate is 4%. Should Olive invest in the irrigation system? Why or why not? (iii) Repeat part ii for an interest rate of 8%.