Imagine you own a retail mail order business. You produce your catalog, where items and prices are listed, in January and you use the same catalog all year. The central bank in your country increases the money supply by an amount to cause inflation to average one percent each month. Ignoring any seasonality in sales (like the holiday season), what should happen to your sales as the year progresses and why?
What will be an ideal response?
As the year progresses sales should increase. Each month, items are becoming one percent cheaper in real terms since the nominal prices stated in the catalog are not changing. By December the products are approximately twelve percent less expensive than when the catalog was first issued. This is an example of where inflation makes separating a true increase in demand for goods from a general increase in prices difficult.
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Refer to Exhibit 7-5. During year 3, Country Z experienced economic _____________ and _________________.
A) decline; deflation (falling price level) B) growth; inflation (rising price level) C) growth; deflation (falling price level) D) decline; inflation (rising price level)
To be considered officially unemployed, a person must be at least 16 years old
A) and be a discouraged worker. B) and not working. C) and not in school and not working. D) and not working but is actively seeking employment.
If there is a natural disaster, the long-run aggregate-supply curve shifts
a) upward. b) left. c) right. d) not at all but instead remains constant.
Product homogeneity is a standard assumption in the traditional theory of pure competition.
a. true b. false