In the aggregate demand-aggregate supply framework, how does an increase in the price level affect potential GDP?
What will be an ideal response?
An increase in the price level has no effect on potential GDP. Potential GDP is independent of the price level, so increases or decreases in the price level have no effect on potential GDP.
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In the 1970s, the Organization of Petroleum Exporting Countries (OPEC) tripled the price of petroleum, causing automobile manufacturers to look for ways to produce more fuel-efficient cars by substituting aluminum and plastic for steel. This was primarily a response to the economic question of:
A) When will each good be produced? B) For whom shall the goods be produced? C) What goods and services should a society produce? D) How should goods and services be produced?
It is generally agreed that
A) the financial system would be more efficient if intermediaries were eliminated. B) small- and medium-sized firms benefit by the actions of intermediaries. C) the addition of intermediaries adds to transactions costs. D) intermediaries should not seek to profit from reducing transactions costs.