Define the following terms and explain their importance to the study of economics
a. poverty line
b. economic discrimination
c. optimal inequality
d. negative income tax
a. The poverty line is an amount of income below which a family is considered "poor." It is a beginning point in the discussion of income distribution.
b. Economic discrimination occurs when equivalent factors of production receive different payments for equal contributions to output. Economic discrimination is a source of inefficiency in the economy, and (in pure competition) will tend to be eliminated. Firms that practice economic discrimination will have lower profits than other firms and will be forced to end discrimination or go out of business if they try to continue.
c. The amount of inequality is based on the idea that there is a trade-off between equality and efficiency. Reducing inequality may, therefore, reduce the efficiency in the economy, reducing GDP, etc.
d. The negative income tax is in general a plan (with several suggested variations) to attempt to reconcile equity and efficiency in approaching the problems of low family incomes, earnings incentives, and the role of taxes. A negative tax guarantees a minimum level of income through government supplements but the supplements are reduced at a consistent rate as household earning increase.
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If intended investment is $2 billion, and unwanted inventory is $0, then we know that all of the following statements are true except
a. consumption spending is $2 billion b. saving = $2 billion c. actual investment = $2 billion d. the economy is in equilibrium e. national income equals aggregate expenditure
What linkage do advocates of income inequality make between income distribution and economic growth? a. Income equality creates greater investment, which leads to lower rates of economic growth
b. Income inequality creates less saving and more consumption, which stimulate higher rates of economic growth. c. Income inequality creates greater investment, which leads to higher rates of economic growth. d. Income equality creates more saving and less consumption, which leads to lower rates of economic growth. e. Income equality creates more investment and less consumption, which leads to higher rates of economic growth.
According to Keynesians, an increase in the money supply will have its greatest impact on GDP when the aggregate demand curve intersects:
A. the vertical portion of the aggregate supply curve. B. the upward sloping portion of the aggregate supply curve. C. the horizontal portion of the aggregate supply curve. D. either the upward sloping or the vertical portions of the aggregate supply curve.
Recall the Application about the impact inflation has on your potential future salary and the repayment of student loans to answer the following question(s).In analyzing the costs involved for student loans in the face of rising prices, this Application is addressing the economic concept of:
A. the marginal principle. B. the principle of voluntary exchange. C. the principle of diminishing returns. D. the real-nominal principle.