Refer to Figure 10.7. A movement from point C to point B could be caused by
A) an increase in consumer confidence accompanied by a decrease in the target interest rate.
B) a decrease in consumer confidence accompanied by an increase in the expected rate of inflation.
C) a negative demand shock accompanied by an increase in the term structure effect.
D) a positive demand shock accompanied by a decrease in the default-risk premium.
C
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If the economy is operating on the long-run aggregate supply curve, then expansionary fiscal policy will
A) generate higher prices in the short run, but will induce aggregate supply to increase in the long run. B) generate an increase in real GDP and higher prices in the short run, but then real GDP will decrease to its long-run level, and the price level will increase some more. C) generate an increase in real GDP without higher prices in the short run, but then real GDP will return to its long-run level, and the price level will increase. D) generate an increase in real GDP and higher prices in both the short run and the long run.
Draw a demand curve and label it D1. On the graph, illustrate an increase in demand and a decrease in demand, and label the curves D2 and D3, respectively. Starting on demand curve D1, explain the shift that would result from each of the following events:
a. an increase in income and the good is a normal good b. an increase in income and the good is an inferior good c. a decrease in the price of a substitute good d. a decrease in the price of a complementary good e. an increase in the taste for the good f. a decrease in population g. an increase in the expected future price of the good