Suppose the economy is in a long-run equilibrium when a temporary, favorable aggregate supply shock occurs. On the graphs above, show what happens to bring the economy back to long-run equilibrium, assuming that there is no policy response
In words, explain why "no response" is the best policy.
The graphs should be similar to Fig. 13.6, with AS shifting first right and then back to the left, so inflation returns to its original rate. If policy makers respond when the inflation rate falls below target, the output gap is enlarged, so AS will shift up and cause a positive inflation gap. If the policy response is to correct the output gap, the decrease in AD will enlarge the negative inflation gap. With no policy response, both the output and inflation gaps return to zero.
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The First National Bank of Townville has $125,000 in U.S. government securities, $200,000 in savings accounts, $300,000 in checking accounts, $50,000 in its reserve account at the Fed, $10,000 of currency in its vault, and loans of $250,000
What is the amount of its reserves?
What is a minimum wage and what are its effects if it is set above the equilibrium wage?
What will be an ideal response?
An example of someone who irrationally considers sunk costs when making a decision is most likely:
A. a family that pays $20 to enter a state park for the day and leaves after an hour. B. a family that pays $20 to enter a state park for the day and stays all day. C. someone who paid $50 for a ticket to a baseball game and ends up sitting through the entire game in the freezing rain without a jacket. D. someone who paid $50 for a ticket to a baseball game and ends up sitting through the entire game enjoying himself.
Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will
a. raise both price and total revenues. b. lower both price and total revenues. c. raise price and lower total revenues. d. lower price and raise total revenues.