Explain how menu costs affect the slope of the short-run aggregate supply curve
What will be an ideal response?
Menu costs make some prices sticky. As the price level rises, some firms will be reluctant to raise their prices. Sales at those firms will increase, and their output will increase. This creates the possibility that an increase in the price level will increase output. More menu costs can make the short-run aggregate supply curve flatter.
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In what ways can economists help auto manufacturers estimate the marginal rate of substitution between features such as vehicle interior size and acceleration?
A) Examining production cost data B) Conducting consumer surveys about willingness to pay for auto features C) Solving the standard consumer model D) Statistically analyzing historical data on purchases of different types of autos E) B and D only
Discuss the determinants of the equilibrium interest rate and how it may change. What can the Fed do to change the interest rate?