Use a graph to show the effects of a contractionary monetary policy to reduce inflation and move an economy back to potential real GDP. Explain what happens to aggregate demand, real GDP, and the price level
What will be an ideal response?
If the economy is experiencing inflation, it is currently at point A, beyond potential real GDP. A contractionary monetary policy will shift the aggregate demand curve to the left from AD1 to AD2, decreasing real GDP and the price level until it reaches potential real GDP at point B.
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When a firm divests itself of an unrelated business to focus on it core competency, the firm is
A) using economies of scope to cut costs. B) downsizing. C) outsourcing. D) market sharing.
The marginal productivity principle says that a profit-maximizing firm should
a. hire capital until its marginal product is zero. b. hire labor until another worker costs more to hire than he can earn for the firm. c. hire the quantities of capital and of labor at which their marginal products are equal. d. hire capital until its marginal product is negative.