Jacob buys less soda when the price of soda rises 10 percent, while the prices of all other goods also rise 10 percent. Jacob is
A. suffering from money illusion.
B. worrying too much about a coming recession.
C. paying too much attention to changes in relative prices.
D. behaving in accordance with classical economic theory.
Answer: A
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Stock prices rise when abnormal profit expectations rise
Indicate whether the statement is true or false
Under a system of fixed exchange rates where the foreign exchange market is in equilibrium and neither country has a balance-of-payments deficit or surplus, an increase in imports of French goods by Japanese consumers, ceteris paribus, would result in a
A. Market surplus of francs. B. Balance-of-payments deficit for Japan. C. Balance-of-trade deficit for France. D. Balance-of-payments surplus for Japan.
Suppose that in an economy with lump-sum taxes and no international trade, autonomous investment spending increases by $2 million. If the marginal propensity to consume is 0.75, equilibrium gross domestic product will change by a maximum of
A) $0.5 million B) $1.5 million C) $2.0 million D) $8.0 million E) $15.0 million
Labor demand is decreasing in the wage because
A) the substitution effect is larger than the income effect. B) the income effect is larger than the substitution effect. C) the production function is concave. D) the marginal product of labor is increasing in labor.