Refer to the accompanying figure. Suppose the solid line shows the current demand for coffee. In response to news that next year's coffee harvest will be extremely good due to favorable weather conditions, you should expect:
A. the quantity of coffee demanded to decrease, but no shift in the demand curve.
B. the demand curve to shift to D(B) in anticipation of lower future prices.
C. the demand curve to shift to D(A) in anticipation of lower future prices.
D. neither a change in quantity demanded nor a shift in demand because it will be a long time before next year's coffee crop is harvested.
Answer: C
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Other things being equal, a reduction in taxes will
A) lead to a corresponding reduction in interest rates increasing the crowding out effect. B) influence the short run aggregate supply curve but not the aggregate demand curve. C) cause an increase in aggregate demand due to increases in consumption, investment, or net exports. D) lead to a reduction in the long run aggregate supply curve as businesses enjoy greater profits.
In the above figure, point E represents the level of real GDP at which planned saving equals planned investment. At point C
A) changes in inventories cannot be determined. B) unused industrial capacity exists in the economy. C) unplanned inventories increase. D) unplanned inventories decrease.