Which of the following is a reason why increases in the price level result in a decline in aggregate expenditure?
A) Price level increases in the United States relative to other countries raise net exports, which lowers aggregate expenditure.
B) As the price level rises, government spending falls, which lowers aggregate expenditure.
C) Price level increases cause firms and consumers to hold more money, which raises the interest rate. Higher interest rates lower consumption and planned investment expenditures, which lowers aggregate expenditure.
D) Price level increases raise real wealth, which causes consumption spending and aggregate expenditure to decline.
C
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An inflationary gap is created when
A) real GDP is greater than potential GDP. B) real GDP equal to potential GDP. C) the inflation rate is less than potential inflation. D) the price level exceeds the equilibrium price level. E) potential GDP is greater than real GDP.
If tofu is a normal good, an increase in income will
a. decrease the price of tofu b. decrease the production of tofu c. shift the demand curve for tofu to the left d. shift the demand curve for tofu to the right e. decrease the quantity demanded of tofu
The straight-line production possibilities curve
A) does not show increasing opportunity costs. B) fails to reflect tradeoffs. C) fails to benefit trading nations. D) refutes the principles of comparative advantage.
Which of the following would be classified as a final good?
A. The services provided by lawyers to a computer manufacturer B. New computer software sold to a computer manufacturer for installation in new computers C. Computer chips sold to a computer manufacturer for installation in new computers D. A new computer sold to a business firm.