Suppose the economy is at a short run equilibrium

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18. Suppose the economy is at a short-run equilibrium that lies below potential GDP. Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP? a. output will decrease. b. short-run aggregate supply will shift to the right. c. prices will increase. d. unemployment will rise. 19. When an economy faces diminishing marginal returns, 3
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20. The Making the Connection feature in the text states that China’s growth rate in GDP per capita from 1996-2008 was eight times Japan’s growth rate. The feature also compares the two countries on various measures of standards of living. Based on the information from this feature, China: 22. Which of the following would you expect to result in a higher standard of living? 23. How do lower corporate income taxes affect aggregate demand? a. they reduce disposable income, consumption and aggregate demand. b. they increase corporate investment and aggregate demand. c. they decrease corporate investment and aggregate demand. d. they increase disposable income, consumption and aggregate demand. 24. Refer to the diagram below. Technological change is illustrated in the per worker production function by a movement from: 25. Refer to the diagram below. Diminishing marginal returns is illustrated in the per worker production function by a movement from: 4
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Long Answer Questions (answer 2 questions) 1. a. Why do some countries such as those in Western Europe and the United States converge to a similar standard of living? Use the appropriate model to explain this “convergence” or “catch-up.” ( 12.5 points ) b. However, not all countries converge to the same standard of living. For example, Niger has a low standard of living and has failed to achieve even moderate rates of economic growth. Explain at least two reasons why some countries do not experience “convergence.” Use the appropriate model to explain. ( 12.5 points ) 2.
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