What is the divine coincidence? When and why does it not hold true?
What will be an ideal response?
The divine coincidence is the ability to achieve both inflation stability and output stability at the same time. The divine coincidence fails when there is a temporary supply shock. When the short-run aggregate supply curve shifts along the aggregate demand curve, both output and inflation gaps result. The only policy response is to shift the aggregate demand curve. Because the SRAS curve has a positive slope, shifting of the AD curve must enlarge one gap in order to reduce the other.
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If the percentage change in price is 10 percent and the demand is elastic, then the percentage change in the quantity demanded
A) is greater than 0 percent but less than 10 percent. B) is larger than 10 percent. C) equals 0 percent. D) equals 10 percent. E) More information is needed to determine the magnitude of the change in the quantity demanded.
Which of the following is true?
i. A price support is inefficient. ii. A price floor set above the equilibrium price creates a surplus. iii. A price ceiling set above the equilibrium price creates a black market. A) only i B) only ii C) only iii D) i and ii E) ii and iii