Author Question: Billy's income elasticity of demand for ground beef is -0.5 and his income elasticity of demand for ... (Read 178 times)

2125004343 · **on:** Jun 29, 2018

Billy's income elasticity of demand for ground beef is -0.5 and his income elasticity of demand for pork chops is 1.2 . Is ground beef a normal or inferior good? Explain. What about pork chops?

What will be an ideal response?

Question 2

Suppose the Fed pursues a policy that leads to higher interest rates in the United States. How will this policy affect real GDP in the short run if the United States is an open economy? This policy

A) increases investment spending, consumption spending, and net exports, all of which increase GDP.
B) reduces investment spending, consumption spending and net exports, all of which reduce GDP.
C) reduces investment spending and consumption spending, both of which reduce GDP. Net exports rise which increases GDP.
D) reduces investment spending and consumption spending, both of which reduce GDP. Net exports fall which increases GDP.

Amiracle · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Because his income elasticity of demand for ground beef is negative, Billy views ground beef as an inferior good. Because his income elasticity of demand for pork chops is positive, Billy views pork chops as a normal good.

Answer to Question 2

B