What is the supply-side cause of instability according to the mainstream view?
What will be an ideal response?
Besides changes in investment spending that shift aggregate demand, the mainstream view also suggests that aggregate supply shocks also cause instability and result in changes in prices and output. Events such as wars, embargo, and other artificial restrictions of supply cause prices to rise and increase the per-unit production cost. This results in a reduction of aggregate supply, destabilizing the economy and causing cost-push inflation and recession.
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If an unregulated electric company is a monopolist and faces demand of Q = 50 - 10P. It has a constant marginal cost of 1 and must pay an environmental fee to the government of 0.2 per unit of output. In this situation, the profit-maximizing level of output is:
a. 5 b. 10 c. 20 d. 50
The consumer price index (CPI) is calculated
a. using a fixed basket of goods and, therefore, will tend to understate inflation. b. using a fixed basket of goods and, therefore, will tend to overstate inflation. c. using a constantly changing basket of goods and, therefore, will tend to understate inflation. d. using a constantly changing basket of goods and, therefore, will tend to overstate inflation.