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Chapter 6: Q10. (page 129)
Do prices tend to become more flexible or less flexible as time passes? Explain.
Prices tend to become more flexible with time due to the adjustment of inputs and their costs.
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Suppose that the annual rates of growth of real GDP in Econoland over a five-year period were sequentially as follows: 3 percent, 1 percent, 鈭�2 percent, 4 percent, and 5 percent. What was the average of these growth rates in Econoland over these five years? What term would economists use to describe what happened in year 3? If the growth rate in year 3 had been a positive 2 percent rather than a negative 2 percent, what would have been Econoland鈥檚 average growth rate over the five years?
Refer to Figure 6.1b and assume that the price is fixed at $37,000 and that Buzzer Auto needs 5 workers for every 1 automobile produced. If demand is DM and Buzzer wants to perfectly match its output and sales, how many cars will Buzzer produce, and how many workers will it hire? If, instead, demand unexpectedly falls from DM to DL, how many fewer cars will Buzzer sell? How many fewer workers will it need if it decides to match production to these lower sales?
Consider a nation in which the volume of goods and services is growing by 5 percent per year. What is the likely impact of this high rate of growth on the power and influence of its government relative to other countries experiencing slower rates of growth? How will this 5 percent growth rate likely affect the nation鈥檚 living standards? Will the standard of living grow by 5 percent per year, given population growth? Why or why not?
Are labor costs a major fraction of the typical firm鈥檚 overall production costs? How does wage stickiness cause price stickiness? Discuss why firms are averse to cutting wages and salaries during a business downturn.
How does investment as defined by economists differ from investment as defined by the general public? What would happen to the amount of economic investment made today if firms expect the future returns to such investment to be very low? What would happen to the amount of economic investment today if firms expect future returns to be very high?
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