Suppose saving is $1,000 when income is $10,000 and the MPC equals 0.9. When income increases to $15,000, saving is
A. $1,500.
B. $1,400.
C. $900.
D. $500.
Answer: A
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Allocative efficiency occurs when it is
A) possible to produce more of one good without giving up the production of some other good. B) possible to produce more of all goods. C) not possible to produce more of one good without giving up the production of some other good that is valued less highly. D) not possible to produce more of one good without giving up the production of some other good that is valued more highly.
In general, the fed funds rate
A) moves in the direction suggested by the Taylor rule. B) moves in the opposite direction as suggested by the Taylor rule. C) is uncorrelated with the Taylor rule prediction. D) None of the above.
Which of the following is true of capital controls?
A. They are socially inefficient methods of maintaining a fixed exchange rate. B. They are key to the success of a fixed exchange rate regime. C. They can be optimal when a disequilibrium is fundamental. D. They cannot be used to maintain a fixed exchange rate.
Coal and iron ore are complements in the manufacture of steel. An increase in the price of coal would lead to
A) an increase in the demand for iron ore as producers substitute more iron ore for coal in the production process. B) a decrease in the demand for iron ore as steel manufacturers reduce production of steel. C) an increase in the supply of iron ore as iron ore producers see an opportunity to expand their markets. D) no change in the demand for iron ore since the steel makers must use both iron ore and coal if they are to make steel.