How do persistently large budget deficits affect capital formation and the long-run rate of economic growth? Do the proponents of the Keynesian, crowding-out, and new classical theories agree on the answer to this question? Discuss.
What will be an ideal response?
Answer: In the Keynesian model, investment is determined by factors other than the interest rate. Thus, budget deficits would not exert much effect on capital formation. In the crowding out model, capital formation would be reduced because the budget deficits would lead to higher interest rates, which would crowd out private investment. In the new classical model, households will save more, and, as a result, budget deficits could be financed without either an increase in the interest rate or a reduction in capital formation.
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How does a contractionary monetary policy affect the labor demand curve in an economy?
What will be an ideal response?
Refer to the above figure. A farmer has 50 acres of land on which to grow wheat or beans. An acre of land yields 400 bushels of beans or 800 bushels of wheat
Which of the following is a possible combination of beans and wheat that can be grown, assuming the land is farmed efficiently? A) 30,000 bushels of each B) 15,000 bushels of beans and 10,000 bushels of wheat C) 25,000 bushels of beans and 25,000 bushels of wheat D) 20,000 bushels of beans and 40,000 bushels of wheat
Which of the following factors would not be considered by a technical analyst when predicting a firm's stock price?
a. a large drop in the stock price yesterday b. a "head and shoulders" pattern in the recent movements of the stock's price c. the likely success of the firm's new product line d. the probable behavior of other buyers and sellers of the stock e. a large jump in the stock's price last week
The time spent by students in college
a. leads to lower lifetime earnings because opportunity costs are high. b. is an investment in human capital. c. decreases human capital by lowering work experience. d. increases as the wages paid to low-skilled workers rise.