At one time, policy makers interpreted the Phillips curve as offering a menu of inflation-unemployment choices. Today, the curve is no longer viewed this way. Why has the interpretation changed?
The original view stemmed from the effect of demand-side changes on inflation and unemployment. Policy makers thought they could reduce unemployment by increasing aggregate demand, albeit at the cost of higher inflation. But it is now recognized that these points are not sustainable, so in the long run wages and other costs will adjust, pushing the economy toward the natural rate of unemployment. An increase in AD will lead to higher resource costs and an eventual decrease in short-run AS, resulting in a higher price level and the loss of jobs created in the short run.
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Which of the following statements best summarizes the law of diminishing marginal returns?
A) In the short run, as more labor is hired, output diminishes. B) In the short run, as more labor is hired, output increases at a diminishing rate. C) In the short run, the amount of labor a firm will hire diminishes as output increases. D) As more labor is hired, the length of time that defines the short run diminishes.
If a firm's demand curve in a monopolistically competitive market is shifting left:
A. competition is likely entering with similar products. B. firms must be exiting the industry. C. economic profits must be increasing. D. None of these statements is true.
In the indifference curve-budget line model of labor supply, the vertical intercept of the budget line represents
a. the worker's nonlabor income. b. the wage rate paid to the worker. c. the number of leisure hours enjoyed by the worker. d. the number of hours of labor that the worker supplies.
Which of the following statements is true?
A. A model shows the estimated parameters of the explanatory variables. B. A model represents a population relationship. C. In an empirical paper, the estimation methods should be discussed before specifying a model. D. The methods for estimating a model are same as the model itself.