When Both Supply and Demand Decrease,the Equilibrium Price

question 60

Multiple Choice

When both supply and demand decrease,the equilibrium price:

• A) increases and equilibrium quantity increases.
• B) is indeterminate and equilibrium quantity increases.
• C) decreases and equilibrium quantity is indeterminate.
• D) increases and equilibrium quantity is indeterminate.
• E) is indeterminate and equilibrium quantity decreases.

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Definitions:

Interest Rates

The amount charged by lenders to borrowers for the use of money, expressed as a percentage of the principal, typically on an annual basis.

Pure Expectations Hypothesis

A theory that suggests that the interest rates on long-term bonds will equal an average of current and future short-term interest rates.

Yield Curve

A graphical representation showing the relationship between the interest rates on debts of different maturities, typically of government bonds, highlighting investors' expectations for future interest rates and economic conditions.

Liquidity Premium

An additional return that investors demand for holding securities that are not easily convertible into cash without a significant loss in value.