The demand for salt is probably more inelastic at generally prevailing prices than the demand for potatoes because
A) potatoes require salt but salt does not require potatoes.
B) salt has long been a favorite target for taxation.
C) salt is cheap relative to most users' incomes and has few good substitutes.
D) salt will keep longer than potatoes before spoiling.
E) there is so much potential salt in the ocean.
C
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Everything else held constant, an increase in financial frictions ________ aggregate ________
A) increases; demand B) decreases; demand C) decreases; supply D) increases; supply
Assume that foreign capital flows from a nation increase due to political uncertainly and increased risk. If the nation has highly mobile international capital markets and a fixed exchange rate system, what happens to real GDP and the monetary base in the context of the Three-Sector-Model? a. Real GDP rises and monetary base rises
b. Real GDP rises and monetary base falls. c. Real GDP and monetary base fall. d. Real GDP and monetary base remain the same. e. There is not enough information to determine what happens to these two macroeconomic variables.