Which of the following sequences results from an increase in the price level?
a. the money demand curve shifts leftward, the interest rate decreases, investment spending and autonomous consumption increase, the aggregate expenditure line shifts downward and there is a leftward movement along the aggregate demand curve.
b. the money demand curve shifts rightward, the interest rate increases, investment spending and autonomous consumption decrease, the aggregate expenditure line shifts downward and there is a leftward movement along the aggregate demand curve.
c. the money demand curve shifts leftward, the interest rate increases, investment spending and autonomous consumption increase, the aggregate expenditure line shifts downward and there is a leftward movement along the aggregate demand curve.
d. the money demand curve shifts leftward, the interest rate drops, investment spending and autonomous consumption decrease, the aggregate expenditure line shifts downward and there is a leftward movement along the aggregate demand curve.
e. the money demand curve shifts rightward, the interest rate increases, investment spending and autonomous consumption increase, the aggregate expenditure line shifts downward and there is a rightward movement along the aggregate demand curve.
B
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Your drink budget is entirely split between bottled water and fancy liqueurs, and your tastes are quasilinear in bottled water. In an attempt to get people to drink more water, the government introduces a subsidy that lowers the price of bottled water.
a. In a graph with bottled water on the horizontal and fancy liqueurs on the vertical axis, illustrate your before-subsidy budget and your optimal bundle A. b. As a result of the water subsidy, I notice you consume more fancy liqueur. Illustrate this in your graph using income and substitution effects. c. You and I are good friends, in part because I confided in you some time ago that I, too, have tastes that are quasilinear in water. (Nothing bonds like quasilinearity!) But, after the subsidy is introduced, you observe that I, unlike you, have reduced my consumption of fancy liqueurs. Your other friends claim that this is proof that our friendship is based on a fiction --- that I cannot possibly also have quasilinear tastes. Illustrate in a graph why your friends are wrong. d. If we both have quasilinear tastes, can you explain what the fundamental difference in our tastes is that accounts for the difference in behavior? What will be an ideal response?
The idea of bounded rationality is used to address all of the following characteristics EXCEPT
A) unbounded selfishness. B) unbounded knowledge. C) unbounded willpower. D) unbounded rationality.
Macroeconomics includes the study of:
A. How rent ceilings impact the construction rates of new apartments. B. How grocery cart rental fees impact parking lot accident rates. C. How the increase in the labor force participation rate by females impacts childhood obesity. D. How the economy works on a regional, national, or international scale.
Which of the following statements is NOT true?
A. The United States government ensures that competition flourishes, that information flows freely, and that property rights are protected. B. The price mechanism will work best if there are a enough firms in each industry to ensure that no one firm can influence price. C. Environmental pollution is considered a market failure. D. Everything produced by the public sector is a public good.