Classical Model of Price Level: It suggests that it is the supply in the economy that creates its own demand . The model suggests that the economy is always at a full level of employment. Hence, the aggregate supply curve is vertical. Any change in the quantity of the money supply is reflected as a change in the aggregate price level even in the short run. Inflation: The situation in the economy when the supply of money exceeds its demand and there is a hike in the price of all the goods and services, this situation is called as inflation. Hyperinflation: When the inflation rate is very high and is usually for a longer duration then it is termed as hyper-inflation. National Unemployment Rate: Some rate of unemployment always exists in the economy irrespective of the labor market equilibrium , this is called the national rate of unemployment. If the labor market is in equilibrium, then also there are people who are not willing to work, and that is called as voluntary-unemployment.

Question

Want to see the full answer?

Answer 1

Question

Chapter 16, Problem 2P

To determine

Concept Introduction:

Classical Model of Price Level:

It suggests that it is the supply in the economy that creates its own demand. The model suggests that the economy is always at a full level of employment. Hence, the aggregate supply curve is vertical. Any change in the quantity of the money supply is reflected as a change in the aggregate price level even in the short run.

Inflation:

The situation in the economy when the supply of money exceeds its demand and there is a hike in the price of all the goods and services, this situation is called as inflation.

Hyperinflation:

When the inflation rate is very high and is usually for a longer duration then it is termed as hyper-inflation.

National Unemployment Rate:

Some rate of unemployment always exists in the economy irrespective of the labor market equilibrium, this is called the national rate of unemployment. If the labor market is in equilibrium, then also there are people who are not willing to work, and that is called as voluntary-unemployment.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Wolfgang is a typical producer in a perfectly competitive piano industry (i.e., all other producers of pianos face the same costs as Wolfgang). The following production and cost data apply to the long run as well as the short run. Fixed costs (rent) are unrecoverable in the short run and are equal to $2400 per month. Variable costs consist of raw materials (wire, wood, plastic), which cost $1000 per piano, and the $40 per hour opportunity cost of Wolfgang's time. Wolfgang's production function is given in the table at right. Wolfgang will shut down if the price per piano is less than OA. $3000. B. $4000. O C. $5000. ○ D. None of the above. Pianos (Q) Hours (L) Raw Materials ( 0 0 0 1 100 1000 2 150 2000 3 240 3000 4 400 4000

P2 P₁ $ per unit Using the graph below, determine which statement is TRUE. MC1 SRATC₁ Q1 Q₂ MC2 SRATC2 LRAC ✓ LEA Quantity

Using the grapns below, wnicn snow the snort-run cost curves for 3 perfectly competitive firms in the same industry, determine whether the industry is in long-run equilibrium or not. Q Q Firm A QA MC ATC Output Firm B QB MC ATC Firm C MC ATC Output Output Qc If Firms A, B and C are in the same industry, is this industry in long-run equilibrium? ○ A. Yes, because P = MC = MR for each of the 3 firms. ○ B. No, because Firm A is not producing at a profit-maximizing level of output. ○ C. Yes, because all 3 firms are producing at their minimum average total cost. OD. The answer is uncertain since it's unknown whether the firms are producing at the minimum efficient scale or not. ○ E. No, because if the industry were in equilibrium, all 3 firms would be earning zero economic profits.