Exhibit 14-8 Aggregate demand and supply
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In Exhibit 14-8, if aggregate demand shifts from AD1 to AD2,
A. real GDP will increase from $3.0 to $7.0, and the price level will remain the same.
B. real GDP will increase from $3.0 to $4.0, and the price level will remain the same.
C. real GDP and the price level will both remain the same.
D. real GDP will increase from $3.0 to $4.0, and the price level will increase from 100 to 140.
Answer: B
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Jeep Cherokees are a normal good. If people's incomes increase, the direct result will be
A) an increase in the supply of the vehicles. B) a decrease in the demand for the vehicles. C) an increase in the demand for the vehicles. D) Both answers A and C are correct.
The substitution effect of a price change for product X is the change in consumption of X associated with a change in
A) the price of X, with the level of utility held constant. B) the price of X, with the level of real income not considered. C) the price of X, with the prices of other goods changing by the same percentage as that for product X. D) income, with prices of other goods held constant.
When the inflation rate ends up being lower than expected,
a. everyone benefits because money is cheaper b. everyone benefits because prices do not increase c. lenders of fixed-rate mortgages generally benefit because they will make higher profits than they had calculated d. borrowers with fixed-rate loans will benefit because their purchasing power will not decline as much e. no one benefits because everyone made financial calculations based on the projected interest rate
When actual GDP does not rise as fast as potential GDP, the economy most likely will experience
A. inflation. B. recession. C. economic growth. D. falling unemployment.