What are demand shocks? Give an example of a positive and a negative demand shock
What will be an ideal response?
Demand shocks are unexpected changes in the demand for goods and services. A sudden decline in average incomes will generate an overall decline in the consumption of goods and services in an economy. An unexpected depreciation of the dollar will increase the amount of exports and reduce the amount of imports in the United States, creating an overall unexpected positive effect in the demand of the goods and services produced in the United States. Finally, a sudden decline in the liquidity of banks will increase interest rates and reduce economic investment.
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If the price of a six-pack of Pepsi falls from $4 to $3 and the quantity purchased increases 80 percent, then demand is
A) inelastic. B) elastic. C) unit elastic. D) perfectly inelastic. E) perfectly elastic.
The income elasticity for cars is high. During the late 1960s, some U.S. citizens experienced a decrease in their real incomes. Consequently, they purchased
(a) more expensive U.S. cars. (b) more foreign imports due to their relatively low costs. (c) used U.S. cars in order to avoid foreign imports. (d) U.S. cars of any type to avoid foreign imports.