Explain why changes in the central bank's inflation target will shift the dynamic aggregate demand curve.
What will be an ideal response?
To explain this, let us illustrate with an analysis of the effect of a decrease in the policymakers' inflation target. The process begins with the monetary policy reaction curve. A fall in the inflation target shifts the monetary policy reaction curve to the left, raising the real interest rate policymakers set at each level of inflation. This reduces aggregate expenditure at every level of inflation, thus shifting the dynamic aggregate demand curve to the left as well. The analysis would be parallel for an increase in the central bank's inflation target.
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Refer to the scenario above. What is the absolute value of Gary's arc elasticity of demand for shirts?
A) 1.2 B) 2.14 C) 3.26 D) 5
If Bradley's Butcher Shop sells its product in a competitive market, then
a. the price of that product depends on the quantity of the product that Bradley's Butcher Shop produces and sells because the firm's demand curve is downward sloping. b. Bradley's Butcher Shop's total cost must be a constant multiple of its quantity of output. c. Bradley's Butcher Shop's total revenue must be proportional to its quantity of output. d. Bradley's Butcher Shop's total revenue must be equal to its average revenue.
The change in price that results from a rightward shift in demand will be greater if
A) the supply curve is horizontal than if the supply curve is upward sloping. B) the supply curve is relatively steep than if the supply curve is relatively flat. C) the supply curve is upward sloping than if the supply curve is vertical. D) the supply curve is horizontal than if the supply curve is vertical.
If two countries agree to specialize and trade based on comparative advantage, which of the following is most likely to be TRUE?
A) Both of the countries will consume outside their respective production possibilities curves. B) One of the countries will end up receiving all of the gains from trade. C) One of the countries will both consume and produce on its production possibilities curve. D) Only one of the countries will produce on and consume outside its production possibilities curve.