Chapter 6: Q5. (page 129)
If the demand for a firm’s output unexpectedly decreases, you would expect its inventory to
a. increase.
b. decrease.
c. remain the same.
d. increase or remain the same, depending on whether or not prices are sticky.
Option (a): increase
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Why do many firms strive to maintain stable prices?
Has economic output always grown faster than the population? When did modern economic growth begin? Have all of the world’s nations experienced the same extent of modern economic growth?
Suppose that Glitter Gulch, a gold mining firm, increased its sales revenues on newly mined gold from \(100 million to \)200 million between one year and the next. Assuming that the price of gold increased by 100 percent over the same period, by what numerical amount did Glitter Gulch’s real output change? If the price of gold had not changed, what would have been the change in Glitter Gulch’s real output?
Are labor costs a major fraction of the typical firm’s overall production costs? How does wage stickiness cause price stickiness? Discuss why firms are averse to cutting wages and salaries during a business downturn.
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, −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’s average growth rate over the five years?
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