3. Suppose that all households hold all their wealth in assets that automatically rise in value when the aggregate price level rises (an example of this is what is called an "inflation-indexed bond"—a bond whose interest rate, among other things, changes one-for-one with the inflation rate). What happens to the wealth effect of a change in the aggregate price level as a result of this allocation of assets? Will aggregate demand still be downward sloping? Why or why not?

Wo firms, a and b, each currently dump 50 tons of chemicals into the local river. the government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. it costs firm a $100 for each ton of pollution that it eliminates before it reaches the river, and it costs firm b $50 for each ton of pollution that it eliminates before it reaches the river. the government gives each firm 20 pollution permits. government officials are not sure whether to allow the firms to buy or sell the pollution permits to each other. what is the total cost of reducing pollution if firms are not allowed to buy and sell pollution permits from each other? what is the total cost of reducing pollution if the firms are allowed to buy and sell permits from each other? a. $3,000; $1,500 b. $4,500; $3,500 c. $4,500; $4,000 d. $4,500; $2,500