An indirect effect of an increase in the price level works through
A) changes in trade balances as domestic goods become more expensive, causing interest rates to move in the opposite direction from the change in the exchange rate.
B) interest rates as people save more as the higher prices make their money balances less attractive.
C) people substituting out of domestic goods and into foreign goods as exchange rates rise.
D) interest rates as people borrow to maintain their money balances, bidding up interest rates and reducing total planned real expenditures.
D
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If a firm is NOT forced to pay for external costs, it will
A) continue to overproduce the good. B) continue to under produce the good. C) request a subsidy from the government. D) raise prices.
An increase in the demand for corn is more than offset by an increase in its supply. As a result, the equilibrium price will ________ and the equilibrium quantity will ________.
A. decrease, increase B. increase, increase C. decrease, decrease D. increase, decrease