Explain through the component parts of aggregate demand why the aggregate demand curve slopes down with respect to the inflation rate. Be sure to discuss two channels through which changes in inflation rates affect demand
What will be an ideal response?
A fall in the inflation rate lowers real interest rates. Lower rates increase investment, thereby increasing aggregate demand. Lower interest rates also cause depreciation of the domestic currency, increasing net exports and aggregate demand.
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A major objective of tax policy should be to
a. avoid distortions in resource allocation while raising revenue b. divert savings from the private to the public sector c. increase the government's ability to direct the economy d. supplement resources entering the country from foreign aid e. all of the above
The Organization of Petroleum Exporting Countries is a
a. professional trade association for oil companies. b. cartel. c. consortium for joint ventures in oil exploration. d. loose collection of democracies that promote international pipelines.
Economists argue that unhindered international trade leads to an efficient outcome. What is meant by "an efficient outcome" in this context?
A) an outcome in which wages are roughly equal around the world B) an outcome in which the standard of living is roughly equal around the world C) an outcome in which an individual can choose to specialize in a certain line of work and be certain that he or she can make a living at that until retirement D) an outcome in which resources are devoted to their most efficient use
The downward-sloping demand curve of a monopolistic competitor
A. ensures that the firm will produce at minimum average cost in the long run. B. reflects some level of control over its own price. C. indicates collusion among the members of the product group. D. becomes eventually horizontal in the long run.