Refer to the graph below. An increase in price, other factors constant, would cause a change from:
A. Point 5 to point 1
B. Point 4 to point 5
C. Point 1 to point 6
D. Point 3 to point 4
Answer: D
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During an economic expansion as consumer incomes rise, holding everything else constant
A) the demand for most goods, except luxuries, will rise. B) the prices of luxuries will fall while the prices of inferior goods will rise. C) the demand for luxuries and inferior goods will rise. D) the demand for luxuries will rise while the demand for inferior goods will fall.
Suppose a family has saved enough for a 10 day vacation (the only one they will be able to take for 10 years) and has a utility function U = V1/2 (where V is the number of healthy vacation days they experience). Suppose they are not a particularly healthy family and the probability that someone will have a vacation ruining illness (V = 0) is 30%. What is the expected value of V?
a. 10 b. 7 c. 3 d. 0
If the Fed increases its open market purchases of government securities, it exerts a downward pressure on the interest rate. Such a phenomenon is usually referred to as the ___________________ effect
A) income B) substitution C) open market D) liquidity E) expectations
Most economists believe that the classical model is the appropriate model for analysis of the economy in the
a. long run, because evidence indicates that money is not neutral in the long run. b. long run, because real and nominal variables are essentially determined separately in the long run. c. short run, because money is neutral in the short run. d. short run, because real and nominal variables are not highly intertwined in the short run.