It is often reported by financial news reports that higher interest rates reduce automobile sales. If this is true, we can expect
A. fiscal policy to be more effective.
B. both fiscal and monetary policy to be more effective.
C. monetary policy to be more effective.
D. neither fiscal nor monetary policy to be more effective.
Answer: C
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Therefore, in the long run, the quantity of labor hired falls more than in the short run, making long-run demand the more elastic. Yes, long-run demand for labor is more elastic than short-run demand in the case where labor and capital are substitutes-the cycle is different but the result is the same. When the wage rate rises and the amount of labor falls, the marginal revenue product of capital (and thus the demand for capital) will rise. The firm will use more capital, and in the substitute case, this reduces the marginal product of labor. The firm responds by using less labor, and the cycle repeats. Less labor and more capital will be employed in the long-run equilibrium than in the short-run equilibrium.
(i) Consider the situation before the Japanese factory is built. What area represents the rents earned by American laborers? What area represents the rents and profits earned by owners of factories and firms?
(ii) Consider the situation after the Japanese factory is built. What area represents the rents earned by American laborers? What area represents the rents and profits earned by American owners of factories and firms? What area represents the rents and profits earned by the Japanese owners of the new factory?
(iii) Did the new Japanese factory raise or lower the aggregate rents and profits earned by Americans? How did its entry affect the distribution of American income?
Refer to the scenario above. What is the payoff to Firm B in equilibrium?
A) $2.6 million B) $0 C) $4 million D) $3 million
A brand name can be a source of market power
Indicate whether the statement is true or false
What is the cyclical deficit, and when is it appropriate to have such a deficit? Why?
What will be an ideal response?