Demonstrate how a permanent fiscal expansion will not increase output in the long run
What will be an ideal response?
(1 ) E on Y-axis, Y on X-axis
(2 ) DD shifts right
(3 ) temporary equilibrium where E lower and Y increased
(4 ) permanent increase in demand caused by increase in G causes currency to appreciate: AA shifts left
(5 ) therefore Y returns to original levels, E decreases even more
RESULT of permanent fiscal expansion: currency appreciation, output does not change. This effect is called "crowding out."
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If a natural monopoly is told to set price equal to average cost, then the firm
A) is not able to set marginal revenue equal to marginal cost. B) automatically also sets price equal to marginal cost. C) will make a substantial economic profit. D) will incur an economic loss. E) sets a price that is lower than its marginal cost.
Assume the firms in a perfectly competitive industry are initially in long-run equilibrium and the cost of labor increases. In the short run, this will cause firms in the industry to:
A) reduce output and incur a loss. B) reduce output and earn a positive economic profit. C) increase output and incur a loss. D) increase output and earn a positive economic profit.