Employing a general equilibrium approach, describe the effect of a new law that prohibits steel imports
What will be an ideal response?
The initial effect is that the supply curve for steel shifts leftward. This raises the price of steel. The largest users of steel are the automobile industry, the construction industry, and the appliance industry. The increased cost of inputs will raise the price of the goods produced by these industries. Given time, these industries will look to substitute plastic or aluminum in place of steel, raising the prices of these materials.
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If the economy is falling below potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in
A) government purchases. B) oil prices. C) the money supply and a decrease in interest rates. D) taxes.
Other assets are inferior to money in the sense that
A) they increase in value more slowly than does money. B) they have a lower overall return than money. C) they are more vulnerable to losing their real value as inflation increases. D) they generate transactions costs when they are exchanged for money.