Other things equal, a price floor will reduce consumer surplus, but it will increase producer surplus if the government buys up any surplus at the price floor
a. True
b. False
Indicate whether the statement is true or false
True
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If the Fed's policy reaction function equals r = .02 + p, where r is the real interest rate, p is the inflation rate. When the inflation rate is zero, then the real interest rate will:
A. set to equal 2%. B. set equal zero too. C. set to equal 4% D. be below the target value for the real interest rate.
Answer the following statement(s) true (T) or false (F)
1. A normative criteria is a way of balancing benefits against costs. 2. Consumer's surplus equals the total value that the consumer places on his purchases minus the amount he actually paid. 3. A consumer's demand curve for pizza is identical to his total value curve for pizza. 4. Market demand always represents marginal value. 5. Social or welfare care is consumer surplus minus producer surplus.
Lowering the discount rate is
A) a contractionary policy stance because the cost of borrowing funds falls, thereby encouraging consumption and investment spending. B) a contractionary policy because it reduces banks' profit margins by lowering the return on lending. C) an expansionary policy stance because consumers and businesses can now borrow funds directly from the Fed at a lower cost, thereby encouraging private spending. D) an expansionary policy stance because it will be less costly for banks to borrow funds and this puts downward pressure on interest rates in the economy.
Which of the following is the largest component of aggregate demand for the U.S. economy?
a) Consumption b) Net exports c) Government expenditures d) Business investment