A Story from Www

question 390

Multiple Choice

A story from www.ft.com (1/31/2005) describing Ireland's transformation to a prosperous economy noted that "Ireland's story is unique: a small, English-speaking, non-industrialized country on the edge of Europe was able to secure structural funds from the EU, cut taxes, deregulate faster than its neighbours and attract lots of foreign companies in the process." If the natural rate of unemployment in Ireland decreased as a result of these policies, then ________ would shift ________.

• A) the long-run and short-run Phillips curves; rightward
• B) the long-run and short-run Phillips curves; leftward
• C) only the long-run Phillips curve; leftward
• D) only the short-run Phillips curve; rightward

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Definitions:

Income Elasticity

Measures how the quantity demanded of a good responds to a change in consumer income.

Normal Good

An item for which demand increases as the income of consumers increases, showing a direct relationship between income and demand.

Income Elasticity

A measure of how much the demand for a good changes as the income of consumers changes.

Normal Good

A good for which demand increases as the income of consumers increases, showing a positive correlation between income and demand.