Answered: Which of the following factors played…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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10. Factors that influence standard of living

Which of the following factors played the biggest role in the slow growth of average incomes in the United States during the 1970s and 1980s?

A-Disinflation of the dollar

B-Slow growth in productivity

C-Increased competition from India

D-Increased competition from Japan

11. Inflation and unemployment

Suppose that the government believes the economy is producing goods and services beyond its optimal level. The government therefore decides to decrease the quantity of money in the economy.

This monetary policy_______ the economy's demand for goods and services, leading to________ product prices. In the short run, the change in prices induces firms to produce______ goods and services. This, in turn, leads to a_______ level of unemployment.

In other words, the economy faces a trade-off between inflation and unemployment: Lower inflation leads to________ unemployment.

12. Economic models

Suppose an economist believes that the price level in the economy is directly related to the money supply, or the amount of money circulating in the economy. The economist proposes the following relationship:

P=A×MP=A×M

•	P=Price LevelP=Price Level
•	M=Money SupplyM=Money Supply
•	A=A composite of other factors, including real GDP, that change very slowly over time.A=A composite of other factors, including real GDP, that change very slowly over time.

How might an economist gather empirical data to test the proposed relationship between money and the price level?

A- An economist would look for data on past changes in the money supply and note the resulting changes in the price level.

B- Economists do not usually develop theoretical models of the economy but only analyze summary statistics about the current state of the economy.

C- Unlike researchers in the hard sciences, economists cannot study complex relationships using data.

D- An economist would persuade the Federal Reserve to change the money supply to various levels, and observe the resulting changes in the price level.

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