Author Question: Refer to Figure 4-7 which shows the market for watermelons. Suppose the government imposes a price ... (Read 59 times)

krzymel · **on:** Jun 29, 2018

Refer to Figure 4-7 which shows the market for watermelons. Suppose the government imposes a price floor of Pw. How will the price floor affect the quantity supplied, quantity demanded, and quantity exchanged?

What will be an ideal response?

Question 2

According to the quantity theory of money, inflation is caused by

A) the money supply growing faster than real GDP.
B) GDP growing at the same rate as the money supply.
C) the money supply growing slower than real GDP.
D) GDP growing faster than the money supply.

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

Answer to Question 1

The price floor will have no effect on the market outcome. An effective price floor must lie above the free-market equilibrium. Thus, in this case the market outcome will be determined by forces of demand and supply.

Answer to Question 2

A