Author Question: An important determinant of the price elasticity of supply is A) whether the good is a durable or ... (Read 139 times)

abarnes · **on:** Jun 29, 2018

An important determinant of the price elasticity of supply is

A) whether the good is a durable or a nondurable.
B) the time period firms have to adjust to a new price.
C) how well consumers like the commodity.
D) the proportion of the consumer's total budget spent on the good.

Question 2

Explain how the money market determines the equilibrium interest rate.

What will be an ideal response?

underwood14 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

B

Answer to Question 2

The demand for money curve, MD, is downward sloping because as the interest rate decreases the quantity of money demanded increases. The supply of money curve, MS, is vertical at the quantity of real money. There exists only one interest rate for which the quantity of money demanded is equal to the quantity supplied. If the interest rate is above the equilibrium interest rate, so that there is an excess supply of money, people respond by buying bonds so that the interest rate falls. Likewise, if the interest rate is less than the equilibrium interest rate, so that there is an excess demand for money, people respond by selling bonds and the interest rate rises.