Suppose all banks are subject to a uniform reserve requirement of 20 percent and that the Gamblers Last Chance Bank of Las Vegas has zero excess reserves. If a new customer deposits $10,000, the bank can now extend new loans up to a maximum of:
a. $2,000
b. $8,000.
c. $10,000.
d. $50,000.
b
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Therefore, in the long run, the quantity of labor hired falls more than in the short run, making long-run demand the more elastic. Yes, long-run demand for labor is more elastic than short-run demand in the case where labor and capital are substitutes-the cycle is different but the result is the same. When the wage rate rises and the amount of labor falls, the marginal revenue product of capital (and thus the demand for capital) will rise. The firm will use more capital, and in the substitute case, this reduces the marginal product of labor. The firm responds by using less labor, and the cycle repeats. Less labor and more capital will be employed in the long-run equilibrium than in the short-run equilibrium.
(i) Consider the situation before the Japanese factory is built. What area represents the rents earned by American laborers? What area represents the rents and profits earned by owners of factories and firms?
(ii) Consider the situation after the Japanese factory is built. What area represents the rents earned by American laborers? What area represents the rents and profits earned by American owners of factories and firms? What area represents the rents and profits earned by the Japanese owners of the new factory?
(iii) Did the new Japanese factory raise or lower the aggregate rents and profits earned by Americans? How did its entry affect the distribution of American income?
If cable TV subscriptions and movie rentals are substitutes for each other, what is the effect in each of these markets of an increase in wages for people who work for the cable TV company? Use your analysis to determine the sign of the cross
elasticity of demand between the quantity of movie rentals and the price of cable TV.
When inflation occurs,
a. real wages must necessarily fall. b. real wages must necessarily rise. c. workers will experience falling real incomes. d. workers' real income may rise or fall.
Exhibit 4-2 Supply and demand curves
In Exhibit 4-2 an increase in supply would cause a movement from which equilibrium point to another, other things being equal?
A. E1 to E2. B. E1 to E3. C. E4 to E1. D. E3 to E4.