Compare production costs in the short run with production costs in the long run.
What will be an ideal response?
The short run is characterized by fixed costs such as a specific plants and equipment. In the long run a firm has no fixed costs because it is free to choose any desired plant size, level of equipment, and technology. Once a firm commits to a given plant size, it has fixed costs and should focus on short-run output decisions.
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Refer to Figure 16-5. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, Congress and the president would most likely pursue
A) expansionary fiscal policy. B) expansionary monetary policy. C) contractionary fiscal policy. D) contractionary automatic stabilizers. E) contractionary monetary policy.
The Ricardian equivalence theorem implies that
A) government debt policy must be handled correctly for the economy to prosper. B) the amounts of government spending are neutral. C) an increase in government spending has no effect on the economy, as long as there is an equal change in taxes. D) the timing of taxes collected by the government is neutral.
Assuming that progressive taxation is desirable, a consumption tax calculated by subtracting saving from income would be preferable to a general sales-based consumption tax
a. True b. False
Firms are encouraged by the profit motive to use inputs efficiently
a. True b. False Indicate whether the statement is true or false