Medical research helps to develop better treatments for ...

[stephzh]

Medical research helps to develop better treatments for neuromuscular disease. Medical researchers are constantly in search of funds. Many in the public, however, are unwilling to contribute money toward neuromuscular disease research until a member of their own family suffers from a neuromuscular ailment. If left strictly to the private market, it is likely that there will be:
 a. an overallocation of resources to neuromuscular disease research, relative to the efficient level.
  b. an underallocation of resources to neuromuscular disease research, relative to the efficient level.
  c. an efficient quantity of resources devoted to neuromuscular disease research.
 d. an efficient quantity of resources devoted to neuromuscular disease research.

Question 2

At one time, policy makers interpreted the Phillips curve as offering a menu of inflation-unemployment choices. Today, the curve is no longer viewed this way. Why has the interpretation changed?

[chevyboi1976]

Answer to Question 1

b

Answer to Question 2

The original view stemmed from the effect of unexpected aggregate demand changes on inflation and unemployment. Policy makers thought they could reduce unemployment by increasing aggregate demand, albeit at the cost of higher inflation. But it is now recognized that these points are not sustainable. So in the long run, wages and other resource costs will adjust, pushing the economy toward the natural rate of unemployment. An increase in AD will lead to higher resource costs and an eventual decrease in short-run AS, resulting in a still higher price level and the loss of the additional jobs created in the short run.