How would the prices of sodas and cookies decreasing affect utility maximization?
A. Your budget line would not change but your indifference curve would get steeper to consume more of both goods.
B. Your indifference curve would shift outward (to the right) and you could consume more.
C. Your budget line would shift outward (to the right) and you could consume at a higher indifference curve.
D. Your indifference curves would shift inward (to the left) and you would consume less of each good but have more extra money.
Answer: C
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If both the production of goods and services increase and prices rise, then the change in nominal GDP
A) definitely understates the change in production. B) definitely accurately reflect the change in production. C) definitely overstates the change in production. D) either understates or might accurately reflect the change in production. E) More information is needed to determine how the change in nominal GDP compares to the change in production.
Consider an economy in a long-run equilibrium with Y = 40 and ? = 3. A demand shock in period one causes output to rise to 45 and inflation rises to 4
Then, the updating of expected inflation to equal 4 causes output in period two to decline to 43.85, and inflation to rise to 4.77. Assuming no further shocks, calculate the values of output and inflation for period three.