Explain why when the demand curve for a good is elastic, a one percent reduction in the price of the good will increase a consumer's expenditure on the good
What will be an ideal response?
When a good has an elastic demand, a one percent decrease in the price will result in a greater than one percent increase in the quantity demanded. Thus, the price multiplied by the quantity will increase when the price declines by one percent.
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The multiplier can be calculated by dividing
A. one by one minus the marginal propensity to invest. B. one by one minus the marginal propensity to save. C. the change in real GDP by the initial change in spending. D. the initial change in spending by the change in real GDP.
People eat at restaurants less often when their incomes fall because of a recession. Eating at restaurants must be
A) an inferior good. B) a normal good. C) a complement to other goods. D) a substitute for other goods. E) an inelastic good.
If capital inflows decrease due to higher interest rates in other countries and large amounts of import spending, there will be:
A) upward pressure on a country's exchange rate. B) downward pressure on a country's exchange rate. C) no pressure on a country's exchange rate. D) none of the above.
Which of the following correctly describes real GDP?
a. Real GDP is GDP after subtracting spending on frivolous items like candy, movies, and toys. b. Real GDP is GDP after subtracting false growth induced by imported goods. c. Real GDP is GDP after adding export sales to foreign countries. d. Real GDP is GDP after subtracting out the effects of inflation.