Define the term normal good. How can a normal good be recognized from
(i) the Engel curve diagram,
(ii) the income elasticity of demand, and
(iii) the substitution and income effects of a price change?
A normal good is one for which a rise in income will cause a rise in quantity demanded. A good is normal if
(i) the Engel curve is upward sloping,
(ii) the income elasticity of demand is positive, or
(iii) the substitution and income effects of a price change move in the same direction.
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The direct effect of an increase in the money supply is
A) people will spend the extra money, causing the aggregate demand curve to shift to the right and prices to rise, and causing the economy to go into recession. B) people will save the money, causing an increase in bank deposits, causing interest rates to fall, and loans to expand. C) people will save more money, causing a decrease in economic activity and a fall in prices. D) people will spend the extra money, causing the aggregate demand curve to shift to the right, creating an increase in economic activity.
An unanticipated increase in the inflation rate will most likely:
A. have no effect on the real value of the national debt. B. increase the real value of the national debt. C. either increase or decrease the real value of the national debt, depending on the effect of inflation on capital gains and losses. D. transfer real wealth from bondholders to the government.
A union's success in raising the wage depends on
A) the elasticity of demand it faces. B) members' ability to act collectively. C) the share of the labor market that is unionized. D) All of the above.
A peak in the business cycle:
What will be an ideal response?