Which is a plausible cause of the movement in Figure 13.1 from point 1 to point 2?
A) a change in expectations that causes a decline in the real interest rate for investments
B) a decrease in expected inflation
C) the economy's self-correcting mechanism
D) the central bank achieves a negative value for the nominal interest rate
E) none of the above
A
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Your friend Tony opened a pizzeria. You helped him to advertise his pizza, which is in fact the best pizza in town. As a result, the demand for Tony's pizza increases and your friend, noticing lines of customers, raises the price of his pizza
But then he fears that the higher price will cause demand to decline, which will cause the price to drop. Is Tony right in his analysis of the situation? Explain.
The absolute value of the price elasticity of demand at the midpoint of a linear demand curve is always
a. greater than one b. less than one c. one d. zero e. infinity