What happens when a firm encounters diminishing returns? What causes diminishing returns?
What will be an ideal response?
The firm encounters diminishing returns when the marginal product of variable inputs declines. This occurs because other inputs are unchanged in the short run.
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Suppose Megan withdraws $75 from her savings account and deposits it into her checking account. This transaction causes M1 to
A. Decrease by $75 and M2 to remain the same. B. Remain the same and M2 to increase by $75. C. Increase by $75 and M2 to remain the same. D. Increase by $75 and M2 to decrease by $75.
Suppose an expansionary monetary policy reduces nominal interest rates. If this is the case, it follows that the expansionary monetary policy must have:
A. increased expected inflation. B. reduced expected inflation. C. increased expected inflation less than it reduced real interest rates. D. reduced real interest rates less than it increased expected inflation.