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This stickiness means that changes in the money supply have an impact on the real economy, inducing changes in investment, employment, output, and consumption. Therefore, when the market-clearing price drops, the price remains artificially higher than the new market-clearing level, resulting in excess supply or a surplus. We could expect that, in the futureSuppose that prices are sticky in the short-run. Many economists believe that prices are “sticky”—they adjust slowly. Suppose a firm is currently producing 500 computers per week and charging a price of $1000. When sales fall in a company, the company doesn’t resort to cutting wages. A recessionary gap, or contractionary gap, is where a country's real GDP is lower than it's GDP if the economy was operating at full employment. In year 1, 100,000 sets are produced and sold at a price of $1,200 each. In the sticky price model appositive relation between price and output exists in the short run. ThenIf a family's income increases by 5% at the same time that inflation is 3.5%, then the:Family will need to spend more in order to maintain its standard of livingMacroeconomic models help clarify important questions such as the following, except:How will OPEC manipulate and maintain the price of crude oil in the world markets?For many decades prior to the Industrial Revolution, the standards of living in England and China:In earlier centuries, the Roman and Chinese economies:Expanded but output per person remained virtually stagnantSuppose that real GDP increases by 5% while the population of a country increases by 7%. Stickiness is a condition wherein a nominal price … Price stickiness, or sticky prices, refers to the tendency of prices to remain constant or to adjust slowly despite changes in the cost of producing and selling the goods or services. Which of the following best represents a positive demand shock when prices are flexible?Refer to the graph above. The economy will respond to demand shocks primarily through changes in prices and inflation C. Prices will adjust to equalize the quantities demanded and supplied of goods and services D. Unemployment will not change in response to a demand shock 5 Suppose a firm is currently producing 500 computers per week and charging a price of $1000. What happens to nominal GDP?Suppose a small economy produces only HD TV sets. Price stickiness would occur, for instance, if the price of a once-in-demand smartphone remains high at say $800 even when demand drops significantly. If prices are sticky, positive demand shock iview the full answer.
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This stickiness, they suggest, means that changesin the money supply have an impact on the real economy, inducing changes in investment, employment, output and consumption, an effect that can be exploited by policymakers.
The economic cycle is the ebb and flow of the economy between times of expansion and contraction. We describe a model in which money is neutral (that is, growth or reduction in moneysupply doesn’t impact real economic act…
2. In year 1, 10,000 MP3 players are produced and sold at a price of $100 each. Price stickiness (or sticky prices) is the resistance of market price (s) to change quickly despite changes in the broad economy that suggest a different price is optimal.
Which of the following best describes the economy's response to a negative demand shock?Firms' inventories will increase, causing them to cut production. In this lesson summary review and remind yourself of the key terms and graphs related to short-run aggregate supply. topics include sticky wage theory and menu cost theory, as well as the causes of short-run aggregate supply shocks. Ultimately, real GDP will increase and unemployment will decrease.Which of the following markets is most likely to exhibit extremely flexible prices?For which of the following goods is the price least likely to be flexible?Which of the following statements about price stickiness or flexibility is true?Prices of many raw materials are much more flexible than the prices of final goods and servicesWhich of the following is NOT a factor that increases short-run price stickiness?A firm can lower its price without fear that rival firms will also lower their pricesOccur when one firm lowers its price and rival firms react by lowering their pricesWhich of the following statements about price wars is true?Firms that have to deal with the possibility of price wars often have sticky prices.In macroeconomic models, prices are assumed to be completely inflexible in:Will tend to experience larger inventory changes than firms that follow a flexible-price policyEconomists need different models of the economy because:The economy behaves differently depending on how much time has passed after a demand shockMany economists believe that over several decades before the Great Recession occurred:Economic fluctuations have become much less severe because of the introduction of computerized inventory tracking systemsThe so-called Great Recession in the U.S. occurred in:During the Great Recession, the U.S. car companies experienced a demand shock, and as it turned out:Before computers, businesses counted their inventory so infrequently that changes in production needed to respond to changes in demand:Computerized inventory tracking has enabled businesses to do the following, except:Wait a longer period before adjusting production levels to changes in demand Price stickiness (or sticky prices) is the resistance of
31. When prices cannot adjust immediately to changes in economic conditions or in the aggregate price level, there is an inefficiency in the market—that is, a market disequilibrium. Which of the following statements is true?Economists and policy makers are committed to encouraging a large and growing real GDP becausemore output means greater consumption opportunitiesIndicate that society is not using a large portion of the talent and skills of its peopleHigh rates of unemployment are undesirable because they:Are associated with higher levels of crime and illnessAn increase in the overall level of prices is called:Inflation is troublesome to consumers because of the following effects, except:Workers' wages may be rising faster than the overall pricesWhich of the following is most likely to be an indication of higher unemployment?Suppose a family's income increases by 5% at the same time that inflation is 6%.
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