What do most economists believe concerning the relation between the price level and real output?
Most economists believe that in the long run, real variables are not affected by nominal variables. So, for example, changes in the money supply do not change real variables in the long run. However, most economists believe that nominal variables do change real variables in the short run. In the short-run prices and wages may be fixed based on the expected price level. If the actual price level differs from the expected price level, real variables are affected.
You might also like to view...
Refer to Figure 12-5. The firm's manager suggests that the firm's goal should be to maximize average profit. If the firm does this, what is the amount of profit that it will earn?
A) $6,600 B) $6,750 C) $12,150 D) $36,000
Book publishers often use a cost-plus pricing strategy. One reason for this is
A) bookstores, not publishers, ultimately determine how many books will be produced. B) much of the cost of publishing textbooks is difficult to assign to any particular book. C) publishers do not want to incur the expense of determining the profit-maximizing strategy. They prefer cost-plus pricing because of its lower cost. D) most publishers do not hire economists who can determine the number of books they must sell to equate marginal cost and marginal revenue.