Suppose the MPC in the economy in Figure 10.2 equals 0.75 and the shift from AD0 to AD1 was caused by a decrease in investment of $20 billion. What will the magnitude of the second decrease in aggregate demand be (for example, AD1 to AD2)?
A. $120 billion.
B. $80 billion.
C. $15 billion.
D. $20 billion.
Answer: C
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In a closed economy:
A) consumption is equal to zero. B) investment is equal to zero. C) government spending is equal to zero. D) net exports is equal to zero. In a closed economy, without the government, the consumption expenditure equals $5,000 and the investment expenditure equals $2,000.
A natural monopoly arises when
A) one firm controls the supply of a unique resource. B) a firm has many small firms that it can control. C) there are firms which act together as a monopoly. D) the long-run average cost curve slopes downward as it crosses the demand curve. E) one firm naturally convinces the government to limit competition in the market.
Suppose that, for example in India, a minimum wage is instituted in the modern sector above the market clearing wage, while the rural traditional wage is market determined at a lower level than in the modern sector
(a) Describe the impact of this policy on the rural labor force, urban unemployment, and the rural wage. (b) Will the modern sector wage be equal to the traditional sector wage after markets equilibrate through migration? Explain. (c) What effect might moving costs have on the equilibrium you described in part (b)? (d) What effect might the introduction of factories to rural areas have no the equilibrium you described in part (b)?
What is precautionary saving? What might cause precautionary saving to increase or decrease if households have a desired level of wealth?
What will be an ideal response?