The government wishes to close an inflationary gap by reducing national income by $400 billion. Assuming a tax multiplier of 4 and an income multiplier of 5, which of the following policy prescriptions would reduce the inflationary gap by $400 billion?
a. decreasing government spending by $400 billion and increasing taxes by $400 billion
b. decreasing government spending by $160 billion and decreasing taxes by $100 billion
c. decreasing government spending by $40 billion and decreasing taxes by $40 billion
d. decreasing government spending by $80 billion and keeping taxes the same
e. doing absolutely nothing to the economy
B
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Suppose in Vietnam a worker can produce either 16 units of cloth or 2 bicycles while in China a worker can produce either 20 units of cloth or 5 bicycles
a. Which country has an absolute advantage in cloth production? In bicycle production? b. What is the opportunity cost of 1 unit of cloth in Vietnam? In China? c. What is the opportunity cost of 1 bicycle in Vietnam? In China? d. Which country has a comparative advantage in cloth production? In bicycle production? e. Suppose each country has 1,000 workers. Currently, each country devotes 40 percent of its labor force to cloth production and 60 percent to bicycle production. What is the output of cloth and bicycles for each country and what is the total output of cloth and bicycles between the two countries? f. Suppose each country specializes in the production of the good in which it has a comparative advantage. What is the total output of cloth and bicycles in the two countries? g. Provide a numerical example to show how Vietnam and China can both gain from trade. Assume that the terms of trade are established at 6 units of cloth for 1 bicycle.
Suppose there are six bait and tackle shops that sell worms in a lakeside resort town in Minnesota. If we add the respective quantities that each shop would produce and sell at each of the six bait and tackle shops when the price of worms is $2 per bucket, $2.50 per bucket, and $3 per bucket, and so forth, we have found the
a. market demand curve. b. market supply curve. c. equilibrium curve. d. surplus or shortage depending on market conditions.
According to the exchange model of production, when two firms are in competitive equilibrium
A. both firms will demand the same quantities of labor and capital. B. the MRTS for two firms will be equal. C. the prices of labor and capital will be at the lowest possible level. D. the marginal products of capital and labor for each firm will be equal.
The longer is the interval between firms' price adjustments
A. the smaller the output effect of a given change in the money supply. B. the shorter the interval the horizontal new Keynesian aggregate supply curve will remain in position. C. the longer the interval that the horizontal new Keynesian aggregate supply curve will remain in position. D. the new Keynesian aggregate supply curve will become steeper.