Author Question: What can income elasticity of demand tell us about the nature of a good? What will be an ideal ... (Read 61 times)

mmm · **on:** Jun 29, 2018

What can income elasticity of demand tell us about the nature of a good?

What will be an ideal response?

Question 2

If the current unemployment rate is 5, under which of the following circumstances would you expect the Fed to use contractionary monetary policy?

A) if the inflation rate is above 5
B) if the inflation rate is below 5
C) if the natural rate of unemployment is below 5
D) if the natural rate of unemployment is above 5

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

Answer to Question 1

The income elasticity of demand for a good equals the percentage change in quantity demanded of a good due to a percentage change in the consumer's income. Using income elasticity, products can be classified as normal goods or inferior goods. Goods with an income elasticity above 1 are called luxury goods. An income elasticity which is above 0 but less than 1 indicates that the good is normal. Inferior goods will have a negative income elasticity.

Answer to Question 2

D