Part 4: Market Sensitivity and Monetary Policy 16. Consumers responded to an increase in the price of widgets from $5 to $15 by reducing the units of widgets consumed from 12 to 10 units. The coefficient of the price elasticity of demand must be (a)1. (b) 0.5. (c) 0.18. (d) 0.21. (e)1.5 17. The seller of widgets (a) must have gained $26 in revenue. (b) must have gained $90 in revenue. (c) must have lost $80 in revenue. (d) must have gained $86 in revenue. 18. Consumers are usually sensitive to changes in the prices of luxury items. (a) True. (b) False. 19. Prices for inessential items are likely to have a price elasticity of demand that is less than 1. (a) True (b) False. The Taylor Rule: FFRR = 2+ 1+0.5(TA -2)+0.5(GDP gap) where GDP gap = GDP - GDPp * 100 GDPP 20. Refer to the Taylor Rule that targets the overnight borrowing rate (the US' policy rate). The Fed increased the policy rate by 0.25% (25 basis points-one hundredth of 1%) yesterday. Assuming that the targeted long-run equilibrium interest rate is 2% and that the current inflation rate is 6.45% in the US, the Taylor Rule suggests that the GDP growth rate above the projected rate should be (a) 25% (b) 0.28% (c) 50% (d) 0,50%. [Hint: use decimals]