Answer the following statement(s) true (T) or false (F)
1. The substitution and income effects are in opposition when the price of an inferior good changes.
2. The income and substitution effect always go in opposite directions.
3. An inferior good is one that is of lower quality than a substitute.
4. When the price of a good rises, the income effect always reduces the quantity demanded of the good.
5. If the price of a non-Giffen good falls, then the income effect causes a rise in the quantity demanded.
1. True
2. False
3. False
4. False
5. False
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Assuming the existence of economies of scale, if a firm finds that it can reduce its unit cost by decreasing its scale of production, it means that
A) it has too much production capacity relative to its demand. B) it should try to produce less. C) the law of diminishing returns has not taken effect. D) it has too much fixed overhead relative to its variable cost.
Which of the following leads to a fundamental difficulty for stabilization policy?
A. Time lags in policy decisions B. Presence of shock absorbers in the economy C. Absence of data on the effectiveness of policy measures D. Existence of self-correcting mechanism
When a firm builds a new factory, this is an example of an investment in:
A. human capital. B. physical capital. C. research and development. D. the market.
Who decides what portion of the money supply will be held as currency in circulation?
a. The Treasury b. The central bank c. The banking system d. The non-bank public e. All the above.