Suppose that banks are less able to raise funds and so lend less. Consequently, because people and households are less able to borrow, they spend less at any given price level than they would otherwise. The crisis is persistent so lending should remain depressed for some time. Suppose the economy reaches long-run equilibrium without the Fed responding. Now suppose the financial crisis ends and the ability of banks to lend returns to normal. In which case is the price level lower compared to its value prior to the crisis? A. both after the economy reaches long-run equilibrium during the crisis and in the long-run equilibrium after the crisis is over B. after the economy reaches long-run equilibrium during the crisis but not in the long-run equilibrium after the crisis is over

13. Application Problem Use the table to find the (a) Linear Supply equation: P = mx + b (b) Linear Demand equation: P = mx + b Prof herbert (c) The equilibrium point. This is the point where the two lines meet. Supply In millions Demand in millions Year Price $ per unit 2002 2003 340 270 2,22 370 250 | 2.72 Hint to finding solution (a) Find the slopes for demand and supply using the point (x,p) given in the table (b) Use point slope equation substituting the slope obtained and one point (x,p) to obtain the requires demand and supply equations respectively. (c) Graph the two equations, The point (x,p) the two lines meet is the equilibrium point meaning when Demand = Supply. (x,p) 14. Modeling problem Medgar Evers College bookstore sells a custom printed T-Shirt. The cost function is given as C(x) = 250 + 4.50x. (a) What is the slope in the cost function (b) Interpret the meaning of the slope in the context of this problem.

4-1 You have noticed that the price of season tickets to your university’s football matches keeps increasing but the supply of tickets remains the same. Why might supply be unresponsive to changes in price? In the longer term, would it be more responsive? How?

Question 7 (10 points) Listen Figure 2-7 HOURS WITHOUT SLEEP Refer to Figure 2-7. Taking cause and effect into account, which of the following interpretations would be most reasonable regarding the relationship between coffee and hours without sleep? The less coffee a person drinks per day, the more time he can go without sleep. There is no relationship betwveen how much coffee per day a person drinks and how long he can go without sleep. The more coffee a person drinks per day, the more time he can go without sleep. The more coffee a person drinks per day, the less time he can go without sleep. Question 8 (10 points) V Saved CUPS OF COFFEE PER DAY

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