Explain how the economy moves back to full employment from recession. Be sure to detail what happens to short-run aggregate supply, unemployment, equilibrium GDP and the price level
What will be an ideal response?
When an economy enters a recession, sales fall and unemployment rises via the automatic adjustment mechanism. The unemployment resulting from the recession makes workers more willing to accept lower wages. The slack demand will make firms willing to accept lower prices for their goods. In addition, the decline in the price level that occurs when the economy went into recession also makes workers willing to accept lower wages, and firms accept lower prices. This shifts the short-run aggregate supply curve to the right and moves the economy back toward potential GDP. Unemployment falls back to the natural level, and the price level falls.
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When a nation's currency depreciates, the country might
A) have an inflation rate that exceeds the inflation rate in nations with which it trades. B) have an inflation rate below the inflation rate in nations with which it trades. C) be responding to an increase in the demand for its currency. D) be responding to a decrease in the domestic demand for foreign currencies.
The above figure shows the marginal social benefit and marginal social cost curves of coffee in the nation of Kaffenia. Producing and consuming the efficient quantity of coffee in Kaffenia means that
A) the marginal social cost of the last pound of coffee is at the lowest possible value. B) the marginal social benefit of the last pound of coffee is at its highest possible value. C) to produce more coffee, the marginal social benefit of an additional pound of coffee is less than its marginal social cost. D) All of the above are correct.
Which of the following statements concerning seasonal credit is true?
A) It tends to have a lower interest rate than federal funds. B) It has become increasingly more important in recent years. C) Only firms receiving secondary credit are eligible to receive seasonal credit. D) Improvements in credit markets have reduced the need for a seasonal credit facility.
Organizational structure can be a strategic asset if it
A) adds value. B) adds value and can be duplicated. C) adds value and cannot be duplicated. D) can be franchised.