Explain how nonrecourse loans operate and how they help to support crop prices
A nonrecourse loan is the major way the government supports crop prices. To get a nonrecourse loan, a farmer must pledge a quantity of a given commodity. The amount of the loan is equal to the given quantity of the commodity multiplied by a designated rate per unit called the loan rate. The farmer can either repay the loan amount with interest, or keep the loan and forfeit the pledged commodity. The option chosen by the farmer depends on the market price of the commodity relative to the loan rate. If the market price is higher than the loan rate, then the farmer will be better off to pay back the loan and sell the commodity at the market price. On the other hand, if the loan rate is higher than the market price the farmer would be better off to keep the loan and forfeit the commodity. In this way, the farmer has been guaranteed a price that is equivalent to the loan rate.
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When your textbook says that it is misleading to say that the market economy produces an aggregate GDP-measured "economic pie," the authors have the following claim in mind:
A) Unlike a pie, income in the economy can't be divvied out independent of the exchange process. B) The economy produces more than just pies. C) The "pie" metaphor focuses solely on real GDP and excludes the more important measure of nominal GDP. D) The production of pies create no income opportunities for market participants.
Refer to Figure 9.1. Assume the economy is initially at point A. The initial change from a shock that increases investment expenditure is best represented by which short-run equilibrium combination of price level and real GDP?
A) P2; Y2 B) P3; Y2 C) P1; Y2 D) P2; Y1
Which of the following could not be expected to shift the aggregate demand curve?
a. Net exports fall. b. Consumption spending decreases. c. An increase in government spending. d. A change in real GDP.
Investing $2 million of your own money in your business is an example of an _______ cost.
Fill in the blank(s) with the appropriate word(s).