Using Figure 2 above, suppose that the economy started at PAE2. A potential change that could cause the economy to go from PAE2 to PAE1 might be:
A. wealth level increases.
B. interest rates increase.
C. domestic income decreases.
D. taxes decrease.
Answer: B
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When a consumer maximizes utility subject to a limited income, she allocates income across goods to the point that: a. the marginal price is the same for all goods
b. marginal utility is zero. c. marginal utility is negative. d. the marginal utility per dollar spent is the same for all goods.
Economists use the phrase "business cycle" when referring to fluctuations in:
A. real GDP. B. the chain price index. C. the consumer price index. D. the general level of prices.
Proponents of fixed exchange rates argue that the predictability of the fixed exchange rate:
A. decreases trade and economic integration. B. prevents exchange rate overvaluation. C. increases trade and economic integration. D. allows monetary policy to be used to stabilize the domestic economy.
What happens to overall living standards when countries trade with other countries?
What will be an ideal response?