When an economy is temporarily operating at an output that is beyond its full-employment rate,
a. excess supply in resource markets will eventually lead to lower resource prices, which will decrease costs and direct the economy toward full employment.
b. excess demand in resource markets will lead to higher resource prices, which will increase costs and direct the economy toward full employment.
c. lower wages and prices will quickly restore full employment.
d. only restrictive fiscal policy will direct the economy back to full employment.
B
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The relationship between disposable income and consumption expenditure is
A) positive. B) U-shaped. C) negative. D) nonexistent. E) not stable because it depends on whether the economy is in equilibrium or not.
In the basic two-period model,
A) credit markets have frictions. B) the government borrows at a lower interest rate than do consumers. C) some consumers will always default on their debts. D) consumers do not default on their debts.
A key element of real business cycle theory is that
a. labor supply is not responsive to changes in real wages. b. labor supply is highly elastic. c. as the wage increases, workers are richer and work less. d. none of the above.
Suppose a tax of $0.10 per unit on a good creates a deadweight loss of $100 . If the tax is increased to $0.25 per unit, the deadweight loss from the new tax would be
a. $200. b. $250. c. $475. d. $625.