You are the manager of a supermarket, and you know that the income elasticity of peanut butter is exactly ?0.7. Due to the economic recession, you expect incomes to drop by 15 percent next year. How should you adjust your purchase of peanut butter?
A. Buy 9.8 percent less peanut butter.
B. Buy 10.5 percent more peanut butter.
C. Buy 6.2 percent less peanut butter.
D. Buy 2.14 percent more peanut butter.
Answer: B
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Suppose the price of a good rises. When will the resulting substitution effect reduce the quantity demanded of the good?
a. Always. b. Whenever the good is a non-Giffen good. c. Only when the good is normal. d. Only when the good is inferior.
For several years, the U.S. unemployment rate has been below the European unemployment rate. Offer a Keynesian explanation for this
What will be an ideal response?
The Consumer Price Index (CPI) differs from a chain-weighted price index in that the CPI
A) compares the prices of all goods in one year to the prices of all goods in other years. B) measures the costs of a typical fixed basket of goods over time, while the chain-weighted index does not. C) requires calculation of GDP, while the chain-weighted index does not. D) allows for the goods consumed in an economy to change over time, while the chain-weighted index does not.
In Figure 17-3 above, suppose we are working under the assumption of the Lucas model. Suddenly, monetary policy becomes more expansionary and every firm believes that the higher prices bid on their product is not being enjoyed by any other firm
We would picture this as a movement between points A) A and C. B) A and B. C) D and B. D) D and A. E) A and D.