Refer to Figure 6.1. Assume that L1 represents the budget line before a price change. The income effect is shown by the movement:
A. from bundle A to bundle C.
B. from bundle A to bundle B.
C. from bundle B to bundle C.
D. from bundle C to bundle B.
D. from bundle C to bundle B.
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When there is a shortage of dollars in the foreign exchange market, the
A) U.S. exchange rate will appreciate. B) supply curve of dollars shifts rightward to restore the equilibrium. C) demand curve for dollars shifts leftward to restore the equilibrium. D) U.S. exchange rate will depreciate. E) supply curve of dollars shifts leftward to restore the equilibrium.
Suppose the price of coffee falls. Other things constant, what will not happen?
A) People will consume more coffee. B) People will consume more cream. C) The demand for coffee will rise. D) The demand for cream will fall. E) More people will now consider drinking bottled water.
If the quantity demanded increases by 20 percent in response to a 10 percent decrease in price, demand is classified as:
a. unstable. b. relatively inelastic. c. relatively elastic. d. of unitary elasticity.
Suppose that the government implements expansionary fiscal policy that raises aggregate demand, but the policy is unanticipated. According to new classical theory, in the short run the price level would ____________ and Real GDP would ______________. In the long run, new classical theory would predict that the price level would ______________ compared to its original long-run equilibrium level
and that Real GDP would ____________. A) rise; decline; rise; remain unchanged B) rise; rise; rise; remain unchanged C) rise; decline; remain unchanged; rise D) fall; rise; remain unchanged; rise