Explain the output and factor substitution effects of an increase in the price of capital on theDemand for labor by a firm that produces output using both capital and labor
What will be an ideal response?
If the price of capital rises, the factor substitution effect suggests that the firm will substitute away from the more expensive input (capital) toward the cheaper input (labor). This means that the demand for labor would increase. However, the increase in the price of capital will also increase the cost of production, leading the firm to produce less. This is the output effect. If the firm produces less, it needs a smaller level of all inputs including labor. This would cause a decrease in the demand for labor. The full effect on the demand for labor depends on the relative sizes of the two effects.
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Which of the following is an example of using money as a store of value?
A) paying for a new dress with a credit card B) paying cash for a new automobile C) paying rent with a check on a demand deposit D) keeping $200 on hand for an emergency
When the Fed buys bonds and injects additional reserves into the banking system, this action will
a. place downward pressure on short-term interest rates. b. cause many decision makers to expect that the future rate of inflation will fall. c. place upward pressure on both short-term and long-term interest rates. d. place upward pressure on short-term interest rates and downward pressure on long-term interest rates.
Suppose the price level in Germany rises, ceteris paribus. This ________________ United States net exports, ultimately shifting the United States AD curve ____________________
A) stimulates; rightward B) stimulates; leftward C) depresses; rightward D) depresses; leftward.
Protectionist policies include all of the following EXCEPT
A. tariffs. B. currency appreciation. C. regulatory barriers. D. quotas.