Suppose the Fed raises the federal funds rate. Put the following changes in order in which they occur, starting with the changes that take place almost immediately and ending with the changes that may occur up to two years afterwards:
i. Short-term interest rates rise.
ii. Long-term interest rate rises.
iii. Aggregate demand decreases.
iv. Inflation rate decreases.
A) ii-i-iv-iii B) ii-i-iii-iv C) i-ii-iv-iii D) i-iii-ii-iv E) i-ii-iii-iv
E
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Refer to the below graph. Consider a situation where price increases from P3 to P4. In this price range, demand is relatively:
A. Inelastic because the loss in total revenue (areas E + F + G) is greater than the gain in total revenue (area A)
B. Elastic because the loss in total revenue (areas E + F + G) is greater than the gain in total revenue (area A)
C. Elastic because the loss in total revenue (area A) is greater than the gain in total revenue (areas E + F + G)
D. Inelastic because the loss in total revenue (area A) is greater than the gain in total revenue (areas E + F + G)
Refer to the graph shown.
Assuming a consumer has $5 to spend, if a soda costs $0.50 and a chocolate bar costs $0.50, the consumer will optimally choose to consume:
A. at point B. B. 10 cans of soda and 0 chocolate bars. C. at point A. D. 0 cans of soda and 10 chocolate bars.