Explain the two basic mechanisms that increase GDP per capita over the long term
What will be an ideal response?
The two basic mechanisms are capital deepening, meaning increases in an economy's stock of capital relative to its work force, and technological progress, which results in an economy operating more efficiently.
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If higher inflation ensues from a temporary negative supply shock, and in response, the central bank raises interest rates, then the resulting decrease in AD will return inflation back to its original level ________
A) and no further action will be required by the central bank B) but the ensuing positive output gap will lead to higher inflation once again so further interest rate increases will be required by the central bank to return inflation back to its long run level C) but the ensuing negative output gap will lead to short-run increases in AS and the central bank will have to "undo" its original interest rate hike in order to return inflation back to its target rate D) all of the above E) none of the above
Which of the following is true of import tariffs and quotas?
a. They benefit domestic producers. b. Domestic consumers gain because they purchase the output of domestic firms. c. Specialization and comparative advantage are advanced by tariffs and quotas. d. They tend to expand the volume of world trade. e. Because they increase the output levels of domestic firms, they tend to lower domestic prices.