Explain what happens to inflation during the business cycle. Give an intuitive explanation as to why inflation changes the way it does over the business cycle

What will be an ideal response?


Inflation will rise during an expansion and fall during a recession. Inflation usually rises near the end of an expansion. Recessions consistently lower the inflation rate. The average decline in the inflation rate has been about 2.5 percentage points during U.S. recessions since 1950. The business cycle has this effect on inflation because spending is usually strong during an expansion and firms will find it easier to raise prices. During a recession the opposite is true. Spending by firms and households is weak and firms might not be able to sell their goods if they aggressively raise prices.

Economics

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Although he is very poor, Al plays the million-dollar lottery every day because he is certain that one day he will win. Al makes this calculation based upon

A) the frequency of past outcomes. B) subjective probability. C) knowledge of all possible outcomes. D) tossing a coin.

Economics

Why does the elasticity of demand for a commodity change over time?

Economics

Developing countries do:

A. compete with one another for foreign investment, and this competition reduces the benefits from foreign investment. B. not compete with one another for foreign investment, because they have sufficient domestic saving to finance their investment needs. C. not compete with one another for foreign investment, because they lack the infrastructure to attract it in the first place. D. compete with one another for foreign investment, but this competition is beneficial to developing countries because it insures a more efficient allocation of resources.

Economics

Recall the Application about finding estimates of elasticities of demand to answer the following question(s).According to the Application, the regular price elasticities of demand found at www.ers.usda.gov are reported as:

A. positive numbers. B. negative numbers. C. dollars per unit of foreign currency. D. foreign currency units per dollar.

Economics