Does the money demand curve have a positive slope or a negative slope? Why does it have this slope? Explain why an increase in the variable on the vertical axis of the money demand curve causes either an increase or a decrease in the variable on the
horizontal axis of the money demand curve.
What will be an ideal response?
The money demand curve has a negative slope. An increase in the interest rate, the variable on the vertical axis, causes a decrease in the quantity of money demanded, the variable on the horizontal axis, because an increase in the interest rate increases the opportunity cost of holding money. Money earns little or no interest, so an increase in the interest rate induces people to reduce their holdings of money and switch into interest-bearing financial assets.
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For each of the following statements, define all of the underlined terms. Then, explain why the statement is true or false
a. If a consumer views two goods as perfect substitutes then their optimal choice will be a corner solution. b. The substitution effect from a price increase states that the consumer will always choose a smaller amount of that good to consume. However, the income effect states that consumption can move in either direction. c. Suppose Alf and Bo have convex indifference curves. Alf likes units of "X" more than units of "Y" but Bo likes units of "Y" much more than units of "X." Then, in the optimum, Alf's marginal rate of substitution will be different from Bo's even if they face the same prices. d. All Giffen goods are normal goods, but not all normal goods are Giffen goods. e. Economists assume that preferences are ordinal. This implies that given two utility functions and one is a monotonic transformation of the other, then they represent the same preferences over bundles of goods.
Which of the following assets are counted in M2?
A) gold B) balances in retail mutual funds accounts C) value of outstanding bonds D) lines of credit offered by commercial banks
If the MPC = 0.75 for a particular person this means that:
A. they will spend 75 cents of each new dollar they get. B. if they receive $1 they want to spend roughly 75%, but probably won’t do so. C. they will spend 25 cents of the $1 and save 75 cents. D. if they receive $1 then they want to spend 25% of it.
How does the calculation of GDP include the costs of natural resource depletion that occurs when output is produced?
a. The value of resource depletion is added to GDP. b. The cost of resource depletion is not measured in GDP. c. The cost of resource depletion is added to real but not nominal GDP. d. Resource depletion causes GDP to overstate well being.