The above figure shows a consumption function and a 45-degree line. Real consumption is a function of disposable income
Why is real GDP used here instead? What is measured along the vertical axis? What is measured by point B? Explain the significance of point A.
Real disposable income is less than real GDP, but can be derived from real GDP. If we assume that real disposable income is the same proportion of real GDP every year, then the change is appropriate. Real GDP is used because we want to find the equilibrium real GDP. Planned consumption expenditures are measured on the vertical axis, and point B measures autonomous consumption. At A, planned consumption spending equals real GDP. Saving equals zero at point A.
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The purpose of functional finance is to
A. decrease deficits through monetary policy. B. use fiscal policy to keep aggregate demand at the desired level, regardless of the impact on deficits. C. tax corporate income first at the corporate level, and then again when it is distributed to shareholders. D. use monetary policy to keep deficits stable over time.
The effect time lag is the time period that elapses
A) between when an economic problem manifests itself and it is officially acknowledged. B) between the recognition of an economic problem and implementing policies to solve it. C) between implementing policies to solve an economic problem and when the results of that policy can be measured. D) between the beginning of the budgetary process and the final budget resolution.
Which of the following is not a criticism sometimes leveled at monopolies? a. A monopoly promotes inefficiency
b. A monopoly creates a welfare loss. c. A monopoly retards innovation. d. A monopoly leads to improved economies of scale in production.
The price of cotton rises. What happens in the market for cotton shirts?
A) The equilibrium price falls and the equilibrium quantity rises. B) The equilibrium price rises and the equilibrium quantity falls. C) The equilibrium price and quantity rise. D) The equilibrium price and quantity fall.