The more substitutable current consumption is with future consumption, the more likely it is that an increase in the interest rate will cause an increase in savings.
Answer the following statement true (T) or false (F)
True
Rationale: The substitution effect causes a decrease in current consumption when the interest rate increases, while the wealth effect causes the opposite (assuming current consumption is a normal good).
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In the long run, following a combination of a negative demand shock and a temporary negative supply shock, ________
A) both inflation and output return to the original long-run equilibrium values B) inflation is permanently increased, while output returns to potential output C) output returns to potential output, while inflation may be higher or lower than its initial value D) inflation is permanently reduced, while output returns to potential output E) none of the above
Holding other factors constant, bad weather causes the supply curve for agricultural products to
a. Shift to the left, causing the prices of agricultural products to rise b. Shift to the left, causing the prices of agricultural products to fall c. Stay the same d. The supply curve does not shift. Only the demand curve shifts.