C211 (Global Economics for Manager)
EXAM STUDY GUIDE QUESTIONS AND
ANSWERS
If the Fed uses monetary policy in a way that increases money supply, what
effect will this have on interest rates and aggregate demand (consider them
separately)?
Correct Answer -Interest rates lower and aggregate demand expands.
If the government uses fiscal policy to increase government spending what
impact will this have on interest rates and aggregate demand?
Correct Answer -Raises interest rates and an increase in aggregate demand.
If the government uses fiscal policy and cuts taxes, what effect will this have
on interest rates and aggregate demand?
Correct Answer -Raises interest rates and an increase in aggregate demand.
Explain the effect an income change might have on shifting the demand
curve?
Correct Answer -Lower income=less to spend in total=lower demand.
Higher income=more to spend in total=raise demand.
Normal good
Correct Answer -a good that consumers demand more of when their
incomes increase
,inferior good
Correct Answer -a good for which, other things equal, an increase in income
leads to a decrease in demand
Explain how the price of related goods is related to changes in the demand
curve?
Correct Answer -When a fall in the price of one good reduces the demand for
another good, the two goods are called substitutes (yogurt for ice cream).
When a fall in the price of one good raises the demand for another good, the
two goods are called complements (hot fudge and ice cream).
If Luke and I are the only sellers of paper in a given market, and Luke drops
his prices for paper, how will this impact the demand for my paper? Which
way will the demand curve shift?
Correct Answer -As Luke drops his price, your demand will decrease. Your
demand curve will shift to the left.
What other factors might influence the position of the demand curve?
Correct Answer -Price of the good itself, income, price of related goods,
tastes, expectations, and number of buyers.
Numerical value that determines whether or not a product/service is
considered price elastic versus inelastic
Correct Answer -1 - greater than or less than
What is income elasticity and how is it measured?
Correct Answer -A measure of how much the quantity demanded of a good
, responds to a change in consumers' income, computed as the percentage
change in quantity demanded divided by the percentage change in income.
price elasticity of demand
Correct Answer -a measure of how much the quantity demanded of a good
responds to a change in the price of that good, computed as the percentage
change in quantity demanded divided by the percentage change in price
elastic
Correct Answer -describes demand that is very sensitive to a change in price
Inelastic
Correct Answer -Describes demand that is not very sensitive to a change in
price
unit elastic
Correct Answer -a given change in price causes a proportional change in
quantity demanded
What two results stem from income elasticity?
Correct Answer -(1) Necessities, such as food and clothing, tend to have
small income elasticities.
(2) Luxuries, such as caviar and diamonds, tend to have large income
elasticities.
cross price elasticity
Correct Answer -A measure of how much the quantity demanded of one
EXAM STUDY GUIDE QUESTIONS AND
ANSWERS
If the Fed uses monetary policy in a way that increases money supply, what
effect will this have on interest rates and aggregate demand (consider them
separately)?
Correct Answer -Interest rates lower and aggregate demand expands.
If the government uses fiscal policy to increase government spending what
impact will this have on interest rates and aggregate demand?
Correct Answer -Raises interest rates and an increase in aggregate demand.
If the government uses fiscal policy and cuts taxes, what effect will this have
on interest rates and aggregate demand?
Correct Answer -Raises interest rates and an increase in aggregate demand.
Explain the effect an income change might have on shifting the demand
curve?
Correct Answer -Lower income=less to spend in total=lower demand.
Higher income=more to spend in total=raise demand.
Normal good
Correct Answer -a good that consumers demand more of when their
incomes increase
,inferior good
Correct Answer -a good for which, other things equal, an increase in income
leads to a decrease in demand
Explain how the price of related goods is related to changes in the demand
curve?
Correct Answer -When a fall in the price of one good reduces the demand for
another good, the two goods are called substitutes (yogurt for ice cream).
When a fall in the price of one good raises the demand for another good, the
two goods are called complements (hot fudge and ice cream).
If Luke and I are the only sellers of paper in a given market, and Luke drops
his prices for paper, how will this impact the demand for my paper? Which
way will the demand curve shift?
Correct Answer -As Luke drops his price, your demand will decrease. Your
demand curve will shift to the left.
What other factors might influence the position of the demand curve?
Correct Answer -Price of the good itself, income, price of related goods,
tastes, expectations, and number of buyers.
Numerical value that determines whether or not a product/service is
considered price elastic versus inelastic
Correct Answer -1 - greater than or less than
What is income elasticity and how is it measured?
Correct Answer -A measure of how much the quantity demanded of a good
, responds to a change in consumers' income, computed as the percentage
change in quantity demanded divided by the percentage change in income.
price elasticity of demand
Correct Answer -a measure of how much the quantity demanded of a good
responds to a change in the price of that good, computed as the percentage
change in quantity demanded divided by the percentage change in price
elastic
Correct Answer -describes demand that is very sensitive to a change in price
Inelastic
Correct Answer -Describes demand that is not very sensitive to a change in
price
unit elastic
Correct Answer -a given change in price causes a proportional change in
quantity demanded
What two results stem from income elasticity?
Correct Answer -(1) Necessities, such as food and clothing, tend to have
small income elasticities.
(2) Luxuries, such as caviar and diamonds, tend to have large income
elasticities.
cross price elasticity
Correct Answer -A measure of how much the quantity demanded of one
