When buyers assume that there is a 70% chance of getting a lemon, and seven lemons (low quality) and three plums (high quality) are supplied, there is an equilibrium.
Answer the following statement true (T) or false (F)
True
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Why is fiscal policy less effective in an open economy than in a closed economy?
a. Expansionary fiscal policy raises demand for imports, which reduces aggregate demand. b. Expansionary fiscal policy raises interest rates, which raises the value of the currency, and reduces aggregate demand. c. Expansionary fiscal policy raises the value of the currency, which reduces demand for exports. d. Expansionary fiscal policy has all the above effects.
In contrast with nominal GDP, real GDP refers to nominal GDP
a. minus exports. b. minus personal income taxes. c. corrected for price changes. d. corrected for depreciation.
If demand and supply both shift to the right, then:
A) both price and quantity will go up. B) price will go down and quantity will go up. C) quantity will go down and price will go up. D) quantity will go up, but price could go up, down, or stay the same
The substitution effect isolates the change in the consumption of a good caused by:
A. the change in the relative prices of two goods. B. the change in consumer preferences. C. the lower "real" income. D. None of the statements is correct.