In the short-run Keynesian model, if the mpc equals 0.8, then to decrease aggregate spending by $30 billion at any output level, government spending must be decreased by ________ or net taxes must be increased by ________.
A. more than $30 billion; more than $30 billion
B. $30 billion; $30 billion
C. $30 billion; more than $30 billion
D. less than $30 billion; less than $30 billion
Answer: C
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Assume dental care is provided by a competitive industry. A new government regulation requires each dentist to take a costly new exam for certification. What happens to the price of dental care?
a. The price of dental care rises in the short run and rises further in the long run. b. The regulation will cause higher prices in the short run, but it will have no long-run impact. c. There is no change in the short run, but dentists will exit and prices will rise in the long run. d. The exam is a sunk cost, so the price of dental care does not change in either the short run or the long run.
Which of the following is a major disadvantage of setting the price of a good below equilibrium and using waiting in line rather than price to ration the good?
a. Compared to price rationing, waiting in line is unfair since it is easier for those with higher incomes to wait in line. b. Waiting in line imposes a cost on the consumer; paying higher prices does not. c. Both waiting in line and higher prices are costly to consumers, but unlike the payment of a higher price, waiting in line does not provide suppliers with an incentive to expand future output. d. Waiting in line benefits consumers at the expense of producers.
People are willing to pay more for a diamond than for a bottle of water because
a. the marginal cost of producing an extra diamond far exceeds the marginal cost of producing an extra bottle of water. b. the marginal benefit of an extra diamond far exceeds the marginal benefit of an extra bottle of water. c. producers of diamonds have a much greater ability to manipulate diamond prices than producers of water have to manipulate water prices. d. water prices are held artificially low by governments, since water is necessary for life.
How do monopolists influence price and demand?
a. Monopolists can sell any quantity they choose at a given price. b. Monopolists have little control over price. c. When monopolists lower prices, sales fall. d. When monopolists raise prices, sales fall.