If the market price faced by a perfectly competitive firm increases, in the short run how does the firm respond?
What will be an ideal response?
If the market price rises, a perfectly competitive firm increases its output. The firm moves upward along its marginal cost curve, thereby increasing the quantity the firm will supply.
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An economy is at a short-run equilibrium as illustrated in the above figure. An appropriate fiscal policy option to move the economy to full employment is to
A) lower the interest rate by increasing the quantity of money and move the economy to a full-employment equilibrium at point b. B) increase government expenditure and move the economy to a full-employment equilibrium at point b. C) increase tax rates and move the economy to a full-employment equilibrium at point c. D) increase government expenditure and move the economy to a full-employment equilibrium at point c. E) increase tax rates and move the economy to a full-employment equilibrium at point b.
If the Fed increases the quantity of money and lowers the federal funds rate, real GDP ________ and the price level ________
A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases E) increases; does not change