How does the natural rate hypothesis relate to the AS-AD model?
What will be an ideal response?
The natural rate hypothesis is the proposition that when the inflation rate changes, the unemployment rate changes temporarily. Eventually, however, the unemployment rate returns to the natural unemployment rate. This definition is in terms of the Phillips curve. In terms of the AS-AD model, the natural rate hypothesis is that increases in aggregate demand temporarily increase real GDP so that it is greater than potential GDP. But eventually real GDP returns to potential GDP so the increase in real GDP above potential GDP is only temporary.
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Among the following cases, the opportunity cost of crowding out is the smallest when the government spends dollars: a. staffing the Internal Revenue Service hotline
b. printing stationery for new members of Congress. c. placing photographs of the new President in government and diplomatic offices worldwide. d. on Social Security benefits. e. on new interstate highways.
Suppose Marv, the owner-manager of Marv's Hot Dogs, earned $82,000 in revenue last year. Marv's explicit costs of operation totaled $36,000. Marv has a Bachelor of Science degree in mechanical engineering and could be earning $40,000 annually as mechanical engineer.
A. Marv's economic profit is $36,000. B. Marv's economic profit is $6,000. C. Marv's implicit cost of using owner-supplied resources is $36,000. D. Marv's implicit cost of using owner-supplied resources is $30,000.
State and local tax receipts are dominated by
A) property taxes and state income taxes. B) state income taxes and sales taxes. C) property taxes and sales taxes. D) sales taxes and business taxes.
Demand-pull inflation is associated with:
A. decreasing total spending (demand). B. increasing total spending (demand). C. decreasing costs of production (supply). D. increasing costs of production (supply).