Distinguish a direct and an inverse or negative relationship. Provide an example of each type of relationship
A direct relationship between two variables means an increase in the value of the independent variable will cause an increase in the value of the dependent variable; and vice versa. An example would be the relationship between the selling price of a good and the amount of the good put up for sale by producers. An inverse relationship between two variables means an increase in the value of the independent variable will cause a decrease in the value of the dependent variable; and vice versa. An example would be the relationship between the price of a good and the amount purchased.
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If the marginal propensity to consume (MPC) is 0.75, and if policy makers wish to increase real GDP by $300 million, then by how much would they have to change taxes?
a. -$300 million. b. -$200 million. c. -$100 million. d. -$50 million.
If the government removes a binding price floor from a market, then the price received by sellers will
a. decrease, and the quantity exchanged in the market will decrease. b. decrease, and the quantity exchanged in the market will increase. c. increase, and the quantity exchanged in the market will decrease. d. increase, and the quantity exchanged in the market will increase.