A substitution effect of a price change is represented by:
A) movement along the same indifference curve.
B) movement to a different indifference curve.
C) a change in the initial budget line to a new budget line.
D) a change in the slope of the initial budget line.
A
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Using aggregate demand and aggregate supply, explain what happens in the short run if the Federal Reserve raises interest rates in the economy. Be sure to detail what happens to aggregate demand, the price level, the level of GDP, and unemployment
Assume that the economy is at full employment before the interest rate increase.
Refer to Figure 10.8. Other things equal, a decrease in the nominal interest rate on money would best be represented by
A) a movement from point A to point C. B) a movement from point A to point D. C) a shift from LM1 to LM2. D) a shift from LM2 to LM1.