The interest rate effect suggests that the negative slope of the aggregate demand curve results at least in part because changes in the price level affect:
a. domestic purchases of foreign goods
b. the holdings of money by households and firms.
c. the real purchasing power of assets.
d. the level of income.
b
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Which of the following best describes the invisible-hand concept?
A. The desires of resource suppliers and producers to further their own self-interest will automatically further the public interest. B. The nonsubstitutability of resources creates a conflict between private and public interests and calls for government intervention. C. The market system is the best system for overcoming the scarce resources-unlimited wants problem. D. Central direction by the government will improve resource allocation in a capitalistic economy.
According to Pigovian analysis, when is a tax necessary to improve the market's economic efficiency?
a. When high transactions costs prevent private bargaining. b. When the social marginal cost of production exceeds the private marginal cost. c. When consumption of the good creates external benefits for others. d. When at the competitive equilibrium, the social marginal benefit of the good equals its social marginal cost.