Explain the menu cost explanation of output fluctuations
What will be an ideal response?
Each wage setter or price setter is largely indifferent as to when and how often he changes his own wage or price. Therefore, even small costs of changing prices can lead to infrequent and staggered price adjustment. This staggering leads to slow adjustment of the price level and to large aggregate output fluctuations in response to movements in aggregate demand. In short, decisions that do not matter much at the individual level (how often to change prices or wages) lead to large aggregate effects (slow adjustment of the price level, and shifts in aggregate demand that have a large effect on output).
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The quantity of U.S. dollars demanded in foreign exchange markets is primarily a function of ________
A) the demand for U.S. goods and services B) the demand for U.S. goods by foreigners C) the expected return on U.S. dollar assets relative to foreign assets D) foreign interest rates
If a firm has a perfectly elastic demand curve, then:
a. it must be a monopoly firm. b. it can charge any price it desires. c. the firm has significant market power. d. the firm has no market power. e. the firm should shut down.