What is likely to happen to the allocation of resources if there is a sudden increase in the demand for a good produced by a perfectly competitive industry?
What will be an ideal response?
If there is an increase in the demand for a good produced by a perfectly competitive industry, the equilibrium price in the industry will increase and the existing firms will earn higher profits. This will act as an incentive for newer firms to enter the industry. As such, resources and firms will move into the industry because of the sudden increase in the demand for this good.
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If private sector investment does not respond much to interest rate changes, then
A) there will be more crowding out when expansionary policies are undertaken. B) there will be less crowding out when expansionary policies are undertaken. C) fiscal policy will be less effective than monetary policy. D) monetary policy will be more effective than fiscal policy.
Under a fixed exchange rate system, an expansionary fiscal policy is
A) more effective in an open economy than in a closed economy. B) less effective in an open economy than in a closed economy. C) equally effective in an open economy and in a closed economy. D) marginally effective in an open economy and completely ineffective in a closed economy.