Answer the following questions true (T) or false (F)
1. Peanut butter and jelly are complements. If the price of peanut butter increases, the demand for jelly will increase.
2. A normal good is a good for which the demanded decreases as income decreases, holding everything else constant.
3. The income effect explains why there is usually a direct relationship between the price of product and the quantity of the product demanded.
1. FALSE
2. TRUE
3. FALSE
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A collective consumption good may be inefficiently produced by the private sector because _____
a. it is inefficient to raise price above marginal cost b. of free riding problems c. fixed costs are too high d. private producers are greedy
Nonexcludability causes:
A. people to demand a higher quantity than they would if they had to pay for what they consumed. B. people to demand a lower quantity than they would if they paid for what they consumed. C. firms to supply a lower quantity than they would if they incurred the full costs of the provision of the good. D. firms to supply a higher quantity than they would if they had to pay for what they supplied.
If Y = $500 billion, autonomous consumption = $400 billion, and the marginal propensity to save = 0.20, then saving will equal
a. –$300 billion b. $300 billion c. $0 d. $80 billion e. –$80 billion
If fiscal policy is going to exert a stabilizing impact on the economy, it must be
a. instituted by the Federal Reserve system. b. expansionary during an economic boom but restrictive during a recession. c. timed correctly. d. passed by a three-fifths majority in Congress.