Rank the components of aggregate demand by their sensitivity to changes in the real interest rate. Start with the most sensitive to the least sensitive.
What will be an ideal response?
The most sensitive is investment demand, followed by consumption and net exports. Consumption is affected because higher interest rates mean higher inflation-adjusted payments for goods such as cars, making them cost more. In addition, higher interest rates increase the return to saving and more saving means less consumption. Net exports are affected since the value of the dollar on foreign exchange markets is impacted by the demand for dollars which is affected by the real interest rate. Changes in the value of the dollar will impact both the price of exports as well as imports. Finally government purchases are the least sensitive to changes in the real interest rate.
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Political creative destruction:
A) is likely to hamper the ruling government in an economy with inclusive institutions. B) leads to losses of all economic agents. C) leads to the benefit of all economic agents. D) is likely to adversely affect the ruling government in an economy with extractive institutions.
When the cost of the CPI market basket increases from one year to the next, we know that
A) on the average, current prices are less than past year prices. B) the quantities of the goods and services contained in the CPI market basket have increased on the average. C) the prices of the goods and services contained in the CPI market basket have increased on the average. D) on the average, current prices are below base year prices. E) either the quantities of the goods and services contained in the CPI market basket have increased on the average and/or the prices of the goods and services contained in the CPI market basket have increased on the average.
The figure above shows a typical perfectly competitive corn farm, whose marginal cost curve is MC and average total cost curve is ATC. The market is initially in a long-run equilibrium, where the price is $3.00 per bushel
Then, the market demand for corn decreases and, in the short run, the price falls to $2.50 per bushel. In the new short-run equilibrium, the farm produces ________ bushels of corn and sells corn at ________ per bushel. A) 250,000; $3.00 B) 250,000; $2.50 C) 300,000; $2.50 D) 200,000; $2.50
Which of the following statements regarding perfect price discrimination is FALSE?
A) Only part of consumer surplus is captured by the firm as producer surplus. B) For the firm, the market demand curve becomes the firm's marginal revenue curve. C) The monopoly produces the output at which the marginal revenue equals the marginal cost. D) No deadweight loss is created.