Why do people hold money in the classical model?
What will be an ideal response?
People hold money because it is a medium of exchange, meaning that it is used in purchasing goods and services. It is not valued as an asset in and of itself.
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Assume a manager of a major league baseball team has a player that is the best pitcheron team the team. However, he decides to to have him play right field instead. It turns out that he is not the best right fielder on the team
How might this manager defend his decision?
If population increases, which of the following will be true? a. GDP will increase
b. GDP per capita will fall at a faster rate than the increase in population. c. GDP must increase if the same standard of living is to be maintained. d. The labor force must increase if the same standard of living is to be maintained. e. Overall demand will increase, but per capita aggregate demand will remain constant.
if the average price level rises from 120 in year 1 to 130 in year 2, the inflation rate between year 1 and 2 will be
What will be an ideal response?
According to the permanent income hypothesis,
a) consumption responds only to changes in current income b) consumption responds more to expected future changes in income than to current income c) consumption responds more to temporary changes in income than to permanent changes d) consumption responds more to lifetime income than to current income e) consumption is a function of previous income