Explain the intuition behind why the aggregate demand curve is downward sloping. Why does an increase in the money supply shift the aggregate demand curve to the right?
What will be an ideal response?
According to the quantity theory, holding the velocity and supply for money constant, a lower price level means that the same level of money can conduct more transactions, so the level of transactions increases. An increase in the money supply means that a higher level of transactions can be supported for every value of the price level.
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In the above figure, if D2 is the original demand curve and the price of a substitute in consumption rises, which price and quantity might result?
A) point a, with price P2 and quantity Q2 B) point b, with price P1 and quantity Q1 C) point c, with price P3 and quantity Q3 D) point d, with price P1 and quantity Q3
The assumption that preferences are complete:
A) means that a consumer will spend her entire income. B) is unnecessary, as long as transitivity is assumed. C) recognizes that there may be pairs of market baskets that cannot be compared. D) means that the consumer can compare any two market baskets of goods and determine that either one is preferred to the other or that she is indifferent between them.
An M-form of organization is exploiting functional business areas
Indicate whether the statement is true or false
When economists are critical of government regulations that prohibit free individuals from making certain kinds of contracts, for example, to purchase a good or service, they will usually invoke the concept of
a. marginal analysis. b. mutual gains from voluntary trade. c. inflation-unemployment trade-off. d. the need for abstraction. e. externalities.