@glassflowers I have no idea either. I say no because firms are able to exit and enter as they please, but my answer and reasoning could be completely off.
“Economies of scale result from increasing returns to scale and are graphically illustrated by a negatively-sloped long-run average cost curve. Economies of scale usually occur for relatively small levels of production and are then overwhelmed by diseconomies of scale for relatively large production levels.” This sounds like monopolistic competition would have both economies of scale and diseconomies? IDKKKKK
forgot that moncomp have differing demand and MR curves and while I said economies of scale my reasoning would have been more appropriate for constant returns so I won’t get that point. Hope I can still get 2-3 points that question
Real interest rate is indeterminate. Real=nominal-inflation. In the short run because AD shifts right, the price level increases and hence inflation increases. Although nominal interest rate will decrease due to the money market, we have no idea about inflation, so real interest rate is indeterminate.
interest rate changes before AD does…more money means supply of loanable funds increases which impacts the real interest rate. Then, since loans are easier to get, investment and capital formation increases and aggregate demand shifts right.
And regardless if it was indeterminate the rest of the question is all useless haha.
I think you’re mixing up the money market and loanable funds market curves. The increase in supply of money shifts the money supply curve in the money market graph. The money market graph shows NOMINAL interest rates not REAL interest rates.
I don’t see how the answer being indeterminate affects the rest of the question
nope, I was talking about the loanable funds market and how people having more money impacts that. Fed buying bonds and lowering fed funds rate means people will take their money out of bonds and put them into banks which increases supply of loanable funds. As the Fed buys securities from, the amount of private money increases so again more loanable funds.
And part e refers to part dii and part f refers to part e and part g refers to part f. If there was an inderterminate change in the real interest rate none of those questions can be answered with certainty therefore obviously the College Board was looking for a change in the real interest rate
I guess we’ll have to wait and see. But I’m pretty sure it was indeterminate, especially because it specified REAL interest rates and increase in money supply affects NOMINAL interest rates