Using the concepts of planned and unplanned investment, explain why investment has such a strong influence on the economy.
What will be an ideal response?
Answers will vary. Students should explain that planned investment influences the economy through expectations. If expectations are that the economy will be good, investment will quickly increase; if expectations are that the economy will be poor, investment will quickly decrease. Unplanned investment also influences the economy in the short run because when firms overproduce, they necessarily make unplanned inventory investment and therefore quickly cut back on production.
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Which of the following is true about exchange economies?
A. All core allocations are efficient. B. In 2-person exchange economies, the core is equal to the set of efficient allocations that is also mutually beneficial relative to initial endowments. C. In n-person exchange economies (with n>2), the core is smaller than the set of efficient allocations that is also mutually beneficial relative to initial endowments. D. (a) and (b) are true. E. (a) and (c) are true. F. (b) and (c) are true. G. All of the above are true. H. None of the above are true.
The Reagan administration's policies were aimed at managing aggregate demand
a. True b. False Indicate whether the statement is true or false
If borrowers and lenders expect a higher rate of inflation,
a. nominal interest rates should decrease. b. nominal interest rates should remain constant. c. nominal interest rates should increase. d. real interest rates should increase.
When the Fed lowers the discount rate, it makes it
What will be an ideal response?