Assume that the research team of a major company is building a model of consumer demand that contains approximately 250 variables. Can you think of a principle that might be violated here that was discussed in chapter 1? Explain
What will be an ideal response?
The principle that is probably being violated is Ockham's Razor. This is the idea that irrelevant data should be cut away. With 250 variables it is very likely that many of them are unnecessary and will only make the model more complicated.
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A change that increases the real money supply relative to real money demand causes
A) the LM curve to shift down and to the right. B) the LM curve to shift up and to the left. C) the IS curve to shift down and to the left. D) the IS curve to shift up and to the right.
The cross-price elasticity of demand between rifles and bullets is likely to be
a. negative because the goods are complements b. positive because the goods are complements c. negative because the goods are substitutes d. positive because the goods are substitutes e. 0 because the goods are not substitutes