If a good is considered to be a luxury good, does it mean that the law of demand does not hold?
What will be an ideal response?
Luxury goods are those items the demand for which increases more than proportionately with an increase in income and therefore the income elasticity of demand is greater than one. This does not mean that the law of demand does not hold. As price increases, the quantity demanded for that good will still decline regardless of the income elasticity of demand.
A
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The Keynesian cause-and-effect sequence predicts that a decrease in the money supply will cause interest rates to:
a. fall, boosting investment and shifting the AD curve rightward, leading to an increase in real GDP. b. fall, boosting investment and shifting the AD curve rightward, leading to a decrease in real GDP. c. rise, cutting investment and shifting the AD curve rightward, leading to an increase in real GDP. d. rise, boosting investment and shifting the AD curve rightward, leading to an increase in real GDP. e. rise, cutting investment and shifting the AD curve leftward, leading to a decrease in real GDP.
The store of value function of money refers to the ability of money to
A) facilitate the exchange of goods and services. B) maintain its value over time. C) express relative scarcity. D) earn interest over time. E) increase its value over time.