Contrast the effects to the euro and the U.S. dollar of a reduction in European tariffs on U.S. imports, ceteris paribus.
What will be an ideal response?
A reduction in European tariffs on U.S. goods would make U.S. goods more affordable to Europeans. They would buy more goods from the United States. This increased demand for U.S. goods would lead to increased demand for U.S. dollars to purchase those goods. To obtain these added U.S. dollars, Europeans would have to exchange more of their euros, increasing the supply of euros on the euro foreign exchange market. This would lead to a rightward shift in the euro supply curve, leading to a lower exchange rate for the euro. This depreciation of the euro relative to the U.S. dollar would mean an increase (appreciation) of the U.S. dollar relative to the euro. Thus, overall, the euro would depreciate and the U.S. dollar would appreciate in value relative to each other.
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When tastes are not quasilinear, the positive economist will introduce error into the analysis if he uses the uncompensated (rather than the compensated) demand curve to predict behavior.
Answer the following statement true (T) or false (F)
Refer to Figure 8.2. At P = $80, the profit-maximizing output in the short run is
A) 22. B) 34. C) 39. D) 50. E) 64.
Michigan has an abundant supply of fresh water. However, an economist would consider it a scarce resource because
a. water is necessary for humans' physical survival b. pollution will eventually destroy all life in the Great Lakes c. water is limited relative to people's unlimited wants d. water commands a very high price e. nature can destroy water as well as create it
The formula to compute the spending multiplier is:
a. 1 / (MPC + MPS). b. 1 / (1 ? MPC). c. 1 / (1 ? MPS). d. 1 / (C + I).