Give an example that demonstrates a change of price elasticity along a linear demand curve. Avoid using examples given in the text.
What will be an ideal response?
Examples will vary, but should show a thorough understanding of how price elasticity can change along a linear demand curve. For example, at the top part of the curve, when the price of Bermuda shorts decreases 5%, the demand increases 12%. This generates a revenue gain, showing that in this region, demand is price elastic. As the price continues to decrease another 5%, there will be another 5% increase in demand. For that part of the demand curve, demand is unit elastic. Finally, if there is another 5% decrease in price, demand might increase only 2%, generating a loss of total revenue and demonstrating that the lower portion of the demand curve is an inelastic region.
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Which view of the causes of the Great Depression emphasizes the decline in the money supply which caused aggregate demand for goods and services to shrink, leading businesses to cut production and employment?
(a) The Monetarists' (b) The Keynesians' (c) The Austrians' (d) The International View
According to traditional Keynesian economics, contractionary fiscal policy initiated by the federal government
A. is an appropriate way to slow down an over-heated economy. B. is an appropriate way to prevent recessions and depressions. C. will always fail due to crowding out effects. D. is never appropriate.
Refer to Table 19-27. What is the level of disposable personal income for this economy?
A) $1,080 billion B) $1,010 billion C) $980 billion D) $860 billion
One objection to the notion of Ricardian Equivalence is that ________
A) households will recognize that a tax cut today will only lead to a tax increase in the future B) individuals are short-sighted in their spending decisions C) borrowing constraints have largely been eliminated due to financial innovation in the provisioning of consumer credit D) households typically save most of the monies received from a tax cut