Suppose there is an unexpected increase in real interest rates. Using the AD/AS model, describe the effects of this policy in the long run and the short run, assuming everything else equal
In the short run, aggregate demand would fall, causing a reduction in prices and output. In time, the below-normal output would put downward pressure on resource prices and wages, causing short-run aggregate supply to increase. This would cause prices to fall and output to increase.
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When water cannot be traded among current and potential users, then
a. each user will take more care to conserve, because added water cannot be obtained. b. users have a strong incentive to conserve because they are now protected from price increases imposed by greedy entrepreneurs. c. efficiency improves, as dry years can be better anticipated and planned for, and every user knows the quantity that will be available. d. water will not flow to its highest valued uses, and some users will use water for relatively low-valued uses, because they cannot gain by selling it to others.
How does this graph show an increase in total revenue?
a. Area a is larger than area c.
b. Area b is larger than area a.
c. Area c is smaller than area b.
d. Area b is equal to area a.