Why is there a need for an aggregate demand and aggregate supply model of the economy? Why can’t the supply and demand model for a single product explain developments in the economy?
What will be an ideal response?
The basic reason for an aggregate model is that there are thousands of individual products in an economy. Single product supply and demand model does not explain: (1) why prices in general rise or fall; (2) what determines the level of aggregate output; and (3) what determines changes in the level of aggregate output. The aggregate model is needed to explain these changes. It simplifies the analysis of prices by combining the prices of all individual goods and services into one aggregate price level. It simplifies the analysis of quantities by combining the equilibrium quantities of all individual goods and services into a single entity called the real domestic output.
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Explain the dilemma that supply shocks pose when the Fed chooses to use monetary policy to achieve its goals
What will be an ideal response?
Proponents of the new growth theory argue that which of the following is a determinant of economic growth?
A) An effective system of patent protection B) The quality and size of the nation's educational system C) The proportion of income that goes into research and development D) All of the above
When the actual reserve/deposit ratio is less than the desired reserve/deposit ratio banks:
A. do nothing because this is a profitable situation. B. stop making loans. C. make more loans in order to earn interest. D. send the extra reserves to the central bank.
Direct transfer programs
a. are generally less efficient and less politically acceptable than subsidy programs b. are generally more efficient and more politically acceptable than subsidy programs c. are generally less efficient but more politically acceptable than subsidy programs d. are generally more efficient but less politically acceptable than subsidy programs e. will generally result in increased production by the group being subsidized