Based on the figure below. Starting from long-run equilibrium at point C, a tax increase that decreases aggregate demand from AD1 to AD will lead to a short-run equilibrium at point ________ and eventually to a long-run equilibrium at point ________, if left to self-correcting tendencies.
A. D; C
B. D; B
C. A; B
D. B; C
Answer: B
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Tacos and pizza are substitutes. If a 2 percent change in the price of a taco leads to a 4 percent change in the demand for pizza, the cross elasticity of demand equals
A) -1/2. B) 1/2. C) 2. D) -2. E) 4.
(I) Rational expectations adherents believe that decision makers base their future expectations on actual outcomes observed during recent periods. (II) The adaptive expectations hypothesis states that decision makers weigh all available evidence when forming expectations about future economic events
a. I is true; II is false. b. I is false; II is true. c. Both I and II are true. d. Both I and II are false.
A decrease in the price of a complement will shift the demand curve for a good to the left
a. True b. False Indicate whether the statement is true or false
Assuming the economy is experiencing a recessionary gap, classical economists predict that:
a. wages will remain fixed. b. lower wages will shift the short-run aggregate supply curve rightward. c. monetary policy should intervene. d. higher wages will shift the short-run aggregate supply curve leftward.