Cole was discussing the market for cocoa beans with his friend John Schmidt
Cole said, "Ever since Venezuela announced that its cocoa harvest was its lowest ever in fifteen years, the price of cocoa beans has been rising and rising and people are buying more and more. I think the demand for cocoa beans must be upward sloping." Is Cole right? Briefly explain why or why not.
Cole has confused a change in demand as s result of a change in the expected future price of cocoa beans with a change in price. Following the announcement of the poor harvest buyers expected that the price of cocoa beans would rise. In anticipation of higher prices in the future, demand increased; this led to a higher equilibrium price. As long as buyers believe that the price of cocoa beans will rise in the future they will increase their demand today.
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During 2015, a country reports aggregate planned expenditures of $5 trillion and an actual real GDP of $4 trillion. During 2015,
A) inventories are less than planned. B) inventories are greater than planned. C) actual aggregate expenditures are greater than real GDP. D) actual aggregate expenditures are less than real GDP. E) inventories are unaffected.
If real GDP grows by 3 percent, the velocity of circulation does not change, and the quantity of money grows by 5 percent, then in the long run the inflation rate is
A) 8 percent. B) -5 percent. C) 2 percent. D) 3 percent. E) -2 percent.