What role does economic profit play in a competitive market?
What will be an ideal response?
Economic profit acts as a signal to entrepreneurs telling them where above normal returns are being earned. Economic profit serves society by directing resources to those activities for which society is currently paying a premium.
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During a period of contractionary monetary policy
A) the price level is increased, which leads to an increase in the money supply. B) the price level is decreased, which leads to a decrease in the money supply. C) the rate of growth of the money supply is increased, leading to an increase in the price level. D) the rate of growth of the money supply is reduced, leading to a decrease in the price level.
According to the classical economists, which of the following statements is false?
A) There is a direct relationship between the amount individuals save and the interest rate. B) There is a direct relationship between the amount business firms invest and the interest rate. C) As the interest rate rises, the quantity supplied of loanable funds rises. D) Interest rate flexibility will ensure that saving is equal to investment.