Consider a Market That Is Initially in Equilibrium with Quantity

question 81

Multiple Choice

Consider a market that is initially in equilibrium with quantity demanded equal to quantity supplied at a price of $20. If the world price of the good is $10 and the country opens up to international trade, then in this market

• A) imports will increase, price will fall, and quantity supplied will fall.
• B) imports will increase, price will decrease, and the supply curve will shift to the left.
• C) quantity demanded will decrease, quantity supplied will decrease, and price will decrease.
• D) exports will increase, price will be unchanged, and quantity supplied will increase.

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Definitions:

Inflation

A sustained increase in the general price level of goods and services in an economy over a period of time, leading to a decrease in the currency’s purchasing power.

Phillips Curve

A macroeconomic model describing an inverse relationship between rates of unemployment and corresponding rates of inflation, suggesting that inflation and unemployment have a stable and inverse relationship.

Federal Reserve

The central bank of the United States, responsible for regulating the US monetary and financial system.

Money Supply

The comprehensive pool of financial assets in an economy at any given time, which includes coins, cash, and the amounts in both checking and savings accounts.