How does an improvement in consumer confidence affect the consumption function and the aggregate demand curve?
What will be an ideal response?
Consumer confidence is affected by expectations about the future. It impacts autonomous consumption and causes the consumption function to shift. If consumers are more confident, they will spend more dollars at all income levels, and the consumption function shifts upward. This increase in spending causes the aggregate demand curve to shift to the right.
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Assume that a firm has $100 million in real assets and $90 in real liabilities. If the price level falls by ten percent, the real value of liabilities would ________
A) fall to $81 million B) change, but more information must be provided to determine the exact movement C) remain unchanged D) rise to $99 million
When the Fed conducts open-market operations, it primarily uses
a. Treasury bills. b. long-term U.S. government bonds. c. bonds of publicly traded corporations. d. overnight loans of major banks.
In the short run, an unexpected increase in prices will
a. reduce resource prices and increase the quantity of goods supplied. b. decrease the productive capacity of firms and decrease the quantity of goods supplied. c. increase the profits of firms, thereby leading them to expand output. d. increase the profits of firms, thereby leading them to reduce output.
If firms in a competitive price-searcher market are incurring economic losses, which of the following scenarios would best describe the change existing firms (who are able to stay in the market) would face as the market adjusts to long-run equilibrium?
a. An increase in demand for each firm and lower prices. b. A decrease in demand for each firm and lower prices. c. An increase in demand for each firm and higher prices. d. A decrease in demand for each firm and higher prices.