ShortRun and LongRun Effects of Money on Real GDP
Now that we have determined the cffccrs of monetary policy changes changes in the money supply on nominal interest rates, we turn our attention to the effect on the overall economy. In the short run, the effects of money supply changes on nominal interest rates will be the same for real interest rates. Let's first consider the effects of an increase in the money supply that leads to decreases in nominal and real interest rates. Lower real rates will cause businesses to invest more and...
Aggregate Supply and Aggregate Demand
The title says it all, but you should spend some quality time here getting the details down. This is the model of equilibrium output and price level for the overall economy and it is used repeatedly for analysis in the topic reviews that follow. Learn it well no breaks here. Learn the differences between the classical, Keynesian, and monetarist views of economic equilibrium and growth too. LOS 23.a Explain the factors that influence real GDP and iong-run and short-run aggregate supply, explain...
Concept Checkers Bcf
1. Which of the following statements is least accurate The existence and use of money A. permits individuals to perform economic calculations. B. requires the central bank to control the supply of currency. C. increases the efficiency of transactions as against a barter system. 2. The Ml measure of the money supply is least likely to include C. currency held by the public. 3. Depository institutions least likely include 4. Banks and savings institutions lower the cost of funds for borrowers by...
Concept Checkers Plh
1. A price index for the broad economy was at the following year-end levels over a 5-year period Year 1 106.5 Year 2 114.2 Year 3 119.9 Year 4 124.8 Year 5 128.1 Which statement best describes the behavior of inflation as measured by this index 2. For a demand-pull ellect or a cost-push effect to cause inflation A. the AD curve has to shih in response to a shift or the AS curve. B. the cause of the shift in AD or AS must be repeated or sustained. C. economic equilibrium must be re-established...
Concept Checkers
1. If the number of ice cream bars demanded increases from 19 to 21 when the price decreases from 1.50 to 0.50, the price elasticity of demand is 2. If quantity demanded increases 20 when the price drops 2 , this good exhibits A. elastic, but not perfectly elastic demand. B. inelastic, but not perfectly inelastic demand. 3. The primary factors that influence the price elasticity of demand for a product are A. changes in consumers' incomes, the time since the price change occurred, and the...
Markets for Factors of Production 1
Here, you want to gain an understanding of how the demand for inputs to production is determined and which factors influence the elasticity of demand for inputs, especially labor. The second key topic is how the market for financial capital establishes the price interest rate or financial capital and the factors that influence the supply of and demand for financial capital. Finally, you should gain an understanding of two components of the payments to productive resources, opportunity cost and...
Monopoly 1
Be able to identify the key features of a monopoly and how natural monopolies arise. Know the relationship between price, marginal revenue, average cost, and marginal cost for a monopoly and why monopolies restrict output to an economically inefficient quantity compared to pure competition. Understand the social benefit of regulation imposing average cost pricing and why marginal cost pricing for a natural monopoly requires a subsidy. I.OS 19.a Describe the characteristics of a monopoly,...
Figure 5 Elasticity of Supply and Tax Incidence
In Figure 6. we illustrate the result for differences in the elasticity of demand. In panel b demand is relatively more inelastic, and we see tluu the size ol the deadweight loss and the decrease in equilibrium output is smaller when demand is more inelastic. We can also see that the actual incidence of the tax imposed on suppliers falls more heavily on buvers when demand is more inelastic. Figure 6 Elasticity of Demand and Tax Incidence
LOS 14d Discuss the relationship between consumer surplus producer surplus and
Note that the efficient quantity of steel where marginal cost equals marginal benefit is also the quantity of production that maximizes total consumer surplus and producer surplus. The combination of consumers seeking to maximize consumer surplus and producers seeking to maximize producer surplus profits leads to the efficient allocation of resources to steel production because it maximizes the total benefit to society from steel production. We can say that when the demand curve for a good is...
Answer
The average quantity of ice cream demanded is 750 600 12 675 scoops, so the percentage change in the quantity of ice cream demanded is 750 - 600 675 22.2 . The average price for frozen yogurt is 1.25 1.75 2 1.50 per scoop, so the percentage change in the price of frozen yogurt is 1.75 - 1.25 1.50 33.3 . The cross elasticity of demand for ice cream relative to the price of yogurt is 22.2 33.3 0.67. Professor's Note For many people, ice cream and frozen yogurt are substitutes, so the cross...
LOS 15b Describe labor market equilibrium and explain the effects and
A price floor is a minimum price that a buyer can offer for a good, service, or resource. If the price floor is below the equilibrium price, it will have no effect on equilibrium price and quantity. Figure 3 illustrates a price floor that is set above the equilibrium price. The result will be a surplus excess supply at the floor price, since the quantity supplied, Qj, exceeds the quantity demanded, Qj, at the floor price. There is a loss of efficiency deadweight loss because the quantity...
How Elasticities of Supply and Demand Influence the Incidence of a Tax
When buyers and sellers share the tax burden, the relative elasticities of supply and demand will determine the actual incidence of a tax. If demand is less elastic i.e., the demand curve is steeper than supply, consumers will bear a higher burden, that is, pay a greater portion of the tax revenue than suppliers. If supply is less elastic i.e., the supply curve is steeper than demand, suppliers will bear a higher burden, that is, pay a greater portion of the tax, revenue than consumers. Here,...
LOS 15c Explain the impact of taxes on supply demand and market equilibrium and
A tax on a good or service will increase its equilibrium price and decrease its equilibrium quantity. Figure 4 illustrates the effects of a tax on producers and of a tax on buyers e.g., a sales tax . In panel a the points indicated by Pt and Qj describe the equilibrium prior to the rax. As a result of this tax. the supply curve shifts from S to S , where the quantity Q is demanded at the price P T he tax is the difference between what buyers pay and what sellers ultimately earn per unit. This...
Actual and Statutory Incidence of a Tax
Statutory incidence refers to who is legally responsible for paying the tax. The actual incidence of a tax refers to who actually bears the cost of the tax through an increase in the price paid buyers or decrease in the price received sellers . In Figure 4 a , we illustrated the effect of a tax on the sellers of the good as opposed to the buyers of the good note that the price is higher over all levels of production the supply curve shifts up . Thus, the statutory incidence in Figure 4 a is on...
Markets for Factors of Production
a. explain why demand for the factors of production is called derived demand, differentiate between marginal revenue and marginal revenue product MRP , and describe how the MRP determines the demand for labor and the wage rate, page 114 b. describe the factors that cause changes in the demand for labor and the factors that determine the elasticity of the demand for labor, page 115 c. describe the factors determining the supply of labor, including the substitution and income effects, and discuss...