Firms will continue to increase their purchase of factor inputs ...

[Hungry!]

Firms will continue to increase their purchase of factor inputs as long as ________.
 
  A) the marginal product of a given factor is greater than its real factor price
  B) the marginal cost of a given factor is lower than its marginal product
  C) their total revenues are greater than their total costs
  D) all of the above
  E) none of the above

Question 2

How might strict adherence to the Taylor rule discourage cost-push inflation?
 
  What will be an ideal response?

[kaylee05]

Answer to Question 1

D

Answer to Question 2

Cost-push inflation cannot persist without repeated increases in AD to counter declines in output. Constrained by the Taylor rule, monetary policy must tighten as the inflation rate rises, even when that means an increase in the (absolute value of the) output gap. Moreover, public knowledge of the central bank's commitment to an inflation target causes upward shifts of the aggregate supply curve to be relatively infrequent and small.