Which of the following statements about models is correct?
a. The more details a model includes, the better the model.
b. Models assume away irrelevant details.
c. Models cannot be used to explain how the economy functions.
d. Models cannot be used to make predictions.
b
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The neoclassical theory of investment
A) links investment spending to stock prices. B) emphasizes that current investment spending depends positively on the expected future growth of GDP. C) emphasizes the role of real interest rates and taxes as determinants of investment. D) suggests that a downturn in real GDP will lead to a sharp fall in investment, which leads to further reductions in GDP through the multiplier.
Suppose that a bond promises to pay its holder $100 a year forever. If the price of the bond increases from $1,000 to $1,250, then the interest rate on the bond
A) falls from 10 percent to 8 percent. B) rises from 8 percent to 10 percent. C) does not change because it is not affected by the price of the bond. D) falls from 10 percent to 6 percent.
Which of the following will NOT work to increase the rate of economic growth?
A) increase saving B) limit competition from international trade C) improve the quality of education D) All of the above will work to increase the rate of economic growth.
In the above figure, if aggregate demand does not change, the short-run equilibrium will
A) eventually adjust to a long-run equilibrium with a higher price level. B) not adjust on its own. C) eventually adjust to a long-run equilibrium with a lower price level. D) None of the above answers are correct.