Economists usually maintain that policy designed to increase aggregate demand cannot have any long-run real effects. What lies behind this argument?
What will be an ideal response?
The basis for the argument lies in the fact that the real output of the country is determined by potential output, which itself is determined by the availability and quality of inputs (resources) and the long-run production function. As a result, an increase in aggregate demand, in the long run, can lead to higher rates of inflation, but not a permanent increase in output. The permanent increase in output can only come from having more or better quality resources or a change in technology.
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A good is said to have an elastic supply if its price elasticity of supply is:
A) equal to zero. B) between zero and one. C) equal to one. D) greater than one.
If the expected earnings of an investment project exceed all expenses except interest payments,
A) business firms will not undertake the project. B) business firms will undertake the project and raise prices later. C) business firms will not undertake the project but will borrow the funds. D) consumers will get lower prices.
Aggregate income equals: a. the sum of income earned by all laborers in the world economy
b. the sum of income earned by all workers in the private sector. c. the sum of the income earned by all the resource suppliers in an economy. d. the total income of all employees after payment of income tax. e. the total income of all employees after purchases of necessities.
A monopolistically competitive firm in the long run will
A. have a demand curve tangent to its AC. B. have a demand curve below its AC. C. have a demand curve above its AC. D. operate where excessive profit can be achieved.