By contrast, the price elasticity of demand tells you “how much” quantity demanded changes when price changes. It shows the responsiveness of a change in quantity demanded to a change in price. [text: E p. 114; MI p. 114] 2. Why do economists use percentages rather than absolute amounts in measuring the responsiveness of consumers to changes in price? There are two basic reasons.
Consumer price and producer price in 2009 to 2012 continue to drop and raise the price for consumers was not steady. The direction and magnitude of price change in the Producer Price Index for finished goods anticipates a similar change in the Consumer Price Index for all items. When this assumed relationship is contradicted by the actual movements of the two series. The answer is that conceptual and definitional differences between the PPI and CPI—differences which are consistent with the uses of the two measures—contribute to the differences in their price movements. A primary use of the PPI is to deflate revenue streams in order to measure real growth in output.
Interest rates remain extremely low and the latest report suggests some members discussing the possibility of making additional policy stimulus to help drive the economy out of its slump. The Reserve’s decision to leave the interest rate at its current low setting confirms that current monetary policy is to influence growth or, and expansionary monetary policy (Board of Governors of The Federal Reserve System, 2010). Monetary Policy’s Effect on Employment and
To use fundamental forecasting, firstly, Logan has to develop a model to determinethe economic variables and how they impact the pound’s value. Subsequently, Logan could forecast the future value of the pound by using the information along with forecasts of the economic variables. It is believed the fundamental forecast would reflect depreciation of the pound. This is because the pound depreciated when British inflation was high in the past andLogan expects British inflation to be high in the future as well. Therefore, based on the forecast of this economic variable and the relationship between inflation and the pound’s value, the pound would be expected to depreciate.
2. What are some of the factors that prevent PPP from occurring in the short run? Would you expect PPP to hold better if countries negotiate trade arrangements under which they commit themselves to the purchase or sale of fixed number of goods over a specified time period? Why or why not? The factors that affect PPP from occurring in the short run are the the changes in the country’s inflation, country’s interest rates, changes in the country’s income level, changes in government control, and changes in the
It also shows some other possible objectives for the firm. Sales revenue maximisation, for example, occurs when marginal revenue is equal to zero, as the next unit produced would carry a negative marginal revenue and hence reduce total revenue. The point where the volume of sales of the good are maximised subject to making at least normal profit is also shown (at the point where AR=AC). An Diagram Possible objectives of the firm I Profit maximisation may become
Or in other words Inflation occurs when the supply of money far exceeds the supply of goods and services. The functions of money are to serve as a medium of exchange, a unit of account, and a store of value. Inflation mainly affects the ability of money to serve as a store of value, since inflation erodes money's purchasing power, making it less attractive as a store of value. Money also isn't as useful as a unit of account when there's inflation, because stores have to change prices more
“Another negative factor was a 6.6 percent drop, on an annualized basis, in federal defense spending.” She supports that the decrease in GDP is directly related to the decrease in government spending g which proves how fiscal policy can affect overall economic growth. Monetary policy can be defined as: A central banks changing of the money supply to influence interest rates and assist the economy in achieving price stability, full employment, and economic growth. The article discusses how decline in economic growth can in part be due to uncertainty of interest rates which is directly controlled by the Federal Reserve. The author supports this idea by showing that uncertainty of interest rates has affected business investments and the slowing of the housing
So each country has different currency, for example country A currency is 2 bills to our United States currency B which equals a dollar. So if we trade with country A we would get more for our dollar then country A would get less for their currency. The factor of inflation is a country that has consistently lower purchasing power like country A. This can cause higher interest rates for that country. Another influence is what they hold in a current account could be considered a deficit which means the country is spending more on foreign trade than it is receiving.
Answer: D Diff: 1 Topic: Definition of Economics 3) Which of the following is a microeconomic topic? A) the reasons why a consumer buys less honey B) the reasons why the average price level in a country falls C) the cause of increasing unemployment D) the effect of the government budget deficit on inflation E) the reasons why the labour force in a country decreases Answer: A Diff: 1 Topic: Definition of Economics 4) The study of how wages are set for New Brunswick teachers is classified as A) a macroeconomic topic. B) a microeconomic topic. C) economics of social interest. D) economics of private interest.