Use a saving-investment diagram to explain what happens to saving, investment, and the real interest rate in each of the following scenarios in a closed economy.(a)Current output rises due to a temporary productivity increase.(b)The tax code changes so that business firms face higher tax rates on their revenue (offset by other lump-sum tax changes so there's no overall change in tax revenue).(c)The government increases spending temporarily for a one-year project to turn mercury into gold.(d)The average educational level rises, inducing an increase in the future marginal productivity of capital.
What will be an ideal response?
| (a) | The rise in output raises desired saving, shifting the Sd curve to the right; in equilibrium, this |
| (b) | The rise in taxes reduces desired investment, shifting the Id curve to the left; in equilibrium, this |
| (c) | The rise in government purchases reduces desired saving, shifting the Sd curve to the left; in |
| (d) | The rise in future marginal productivity of capital raises desired investment, shifting the Id |
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The federal agency that monitors and regulates the stock market is the
A. Chicago Mercantile Exchange. B. Securities and Exchange Commission. C. Department of Justice. D. Federal Trade Commission.
When the existing firms in a competitive industry have different operating costs:
a. the highest-cost firm in operation breaks even, while the low cost firms will earn profit. b. the highest-cost firm in operation breaks even, while the low cost firms leave the industry. c. the low cost firms earn a larger profit than the high-cost firms. d. the highest-cost firms will incur a deadweight loss.
For each watch Switzerland produces, it gives up the opportunity to produce 50 pounds of cheese. Germany can produce one watch at a cost of 100 pounds of cheese. Which of the following is true?
a. The opportunity cost of producing watches is lower in Switzerland. b. The opportunity cost of producing cheese is lower in Switzerland. c. The opportunity cost of producing watches is the same in both countries. d. It is impossible to compare costs because the two countries are not the same size. e. In Germany, the cost of a pound of cheese is one watch.
In 2007-2009, the Fed cut interest rates to limit the international financial crisis. What is the effect of this on velocity?
a. It will decrease. b. It will increase. c. It will remain constant. d. Velocity is unrelated to interest rates.