Define the following terms carefully:
(a) Full employment
(b) Purchasing power of money
(c) Real wage rate
(d) Relative price
What will be an ideal response?
(a) Full employment is a situation in which everyone who is willing and able to work can find a job. At full employment, the measured unemployment rate is still positive.(b) The purchasing power of a given sum of money is the volume of goods and services that it will buy.(c) The real wage rate is the wage rate adjusted for inflation. Specifically, it is the nominal wage divided by the price index. The real wage thus indicates the volume of goods and services that the nominal wages will buy.(d) An item’s relative price is its price in terms of some other item rather than in terms of dollars.
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Aggressive policy measures taken by the monetary authority during the 2007-2008 financial crisis in the United States resulted in:
a. avoidance of a recession caused by a tight credit market. b. almost no transmission of the monetary stimulus to market rates of interest, increased lending, and expansion of GDP. c. lower rates of interest and increased investment activity. d. an increase of real GDP and a fall in the core unemployment rate.
Suppose the price elasticity of demand for a product is 1.3 . If a supplier wants to increase revenue, what change should it make to price, if any?