In the context of aggregate demand and aggregate supply, the wealth effect refers to the idea that, when the price level decreases, the real wealth of households
a. increases and as a result consumption spending increases. This effect contributes to the downward slope of the aggregate-demand curve.
b. decreases and as a result consumption spending increases. This effect contributes to the upward slope of the aggregate-supply curve.
c. increases and as a result households increase their money holdings; in turn, interest rates increase and investment spending decreases. This effect contributes to the downward slope of the aggregate-demand curve.
d. decreases and as a result households increase their money holdings; in turn, interest rates increase and investment spending decreases. This effect contributes to the upward slope of the aggregate-supply curve.
a
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All of the following are ways that the government can correct for positive externalities EXCEPT
A) by subsidizing the consumption of the good. B) producing the good itself. C) by regulation. D) by assessing an effluent fee.
George always purchases the soda with the lowest price. For George, the cross price elasticity of demand for two brands of soda will be
A) equal to 0. B) negative. C) positive. D) impossible to determine without more information.