Suppose the economy is initially operating above the natural level of output. In a fixed exchange rate regime, explain how the economy will adjust to this situation
What will be an ideal response?
With Y below the natural level, the expected price level (or expected inflation) will fall causing W to fall. As W falls, P will fall. As P falls, a real depreciation occurs and NX increases. We would move along the AD curve.
Economics
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Over the past year, productivity grew 2%, capital grew 1%, and labor grew 1%. If the elasticities of output with respect to capital and labor are 0.2 and 0.8, respectively, how much did output grow?
A) 1% B) 2% C) 3% D) 4%
Economics
In calculating multifactor productivity growth, the elasticity of output to changes in capital (given as "b" in the textbook) is assumed to be
A) one minus the population growth rate. B) the depreciation rate. C) the share of capital income in GDP.
Economics