Refer to the graph shown. The segment of the demand curve between the initial equilibrium price of $5.00 and the new equilibrium price of $3.00 is:
A. elastic.
B. perfectly inelastic.
C. inelastic.
D. perfectly elastic.
Answer: C
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Price floors are only effective below the market equilibrium.
Answer the following statement true (T) or false (F)
If we observe an increase in real GDP and an increase in the price level after an increase in aggregate demand, we can conclude that
A) the aggregate supply curve is upward sloping. B) the aggregate supply curve is horizontal. C) the aggregate supply curve is vertical. D) the economy is now at full employment.
Suppose that country A pegs its currency to that of country B. Now suppose that there is an adverse demand shock in country A. Country B is more likely to cooperate and increase its money supply in response to country A's adverse demand shock when:
A) country B's output is below its preferred level. B) country B is experiencing high rates of inflation. C) country B wants country A to devalue its currency. D) country A is experiencing high rates of inflation.
Explain what is meant by a devaluation of a currency. Under what circumstances would a country devalue its currency?
What will be an ideal response?