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Consider the AD/AS model built from the IS/LM, with an upward sloping SRAS. The economy was operating at full employment, but it is suddenly hit by unfavorable weather conditions, which increases the expected price level and shifts the SRAS to the left.
Assume that the government decides to keep its policy unchanged.
i. What should the central bank of this country do if its main objective is output stabilization in the short run?
ii. What are the effects of this policy on the price level, output, the real interest rate, consumption and investment?
iii. Compare the long-run equilibrium after this policy is implemented with the long-run equilibrium that this country would have reached without policy intervention. Are the price level, output, real interest rate, consumption and investment different?
Explain the statement: "Fixed costs exist only in the short run. In the long run there are no fixed costs." Why might the time frame for the "short run" differ from one industry to the next? Provide examples of two industries with different time fram..
Suppose demand is still described by P=5.10-0.80Q and supply is described by P=1.90+0.20Q. If there are no price controls, what would be the equilibrium price, quantity and consumer surplus?
In June 2008, the U.S. retail gas price jumped from $3 to $4 a gallon. This is a 33% increase in price from January 2008. During that time, the total quantity of gasoline purchased fell by 3%. Supplies of gasoline produced also decreased from one mil..
Do current politicians use to manage and influence to get reelected. Is this a "valid" use of political power.
Suppose there is a decline in marginal costs for one member of a cartel. What impact will this have on the incentive of that firm to cheat on the cartel agreement? Explain.
We are evaluating a project that costs $837,000, has a thirteen-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 156,000 units per year. Price per unit is $35,..
Assuming that there are no direct expenditure offsets to fiscal policy, how much should the government increase taxes? Explain by giving appropriate reasons.
The demand curve for chicken biscuits is estimated to be: Ln (Q xd) = 100 - .75 ln (Px) - 4 n (Py) + 1.5 ln (M) Where x represents chicken biscuits, y represents chocolate milk and M represents income. If income drops by 2%, holding constant the pric..
In the numerical example given in the text, the inverse demand function for the depletable resource is P = 8 -0.4q and the marginal cost of supplying it is
If the cost of plaster and labour is $9 per gnome, what is the lowest price of gnomes at which there is a positive supply in the long run? (Remember that in order for there to be a positive supply in the long run, producers need to get their money ba..
Assumes the perfectly competitive firm is in long-run equilibrium also there is an rise in Demand
Assuming that wheat and barley both sell for $1, and income is $20, compute the price elasticity, cross price elasticity and income elasticity for wheat.
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