Adverse selection is illustrated by people who take greater risks after they purchase insurance
a. True
b. False
Indicate whether the statement is true or false
False
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The accompanying diagram shows the U.S. market for automobiles. P0 is the world price of automobiles, Q0 is the quantity of American automobiles produced, and Q1 - Q0 is the quantity of automobiles imported. Consumers are indifferent between American and imported automobiles, but each imported automobile creates $100 of pollution costs.
(i) Calculate consumers' surplus, producers' surplus, the pollution damages, and social gain when no attempt is made to internalize the externality.
(ii) Suppose the government imposes a $100 tariff on imported automobiles. Calculate consumers' surplus, producers' surplus, tariff revenue, the pollution damages, and social gain in this situation. Did the tariff increase social gain? Did the tariff result in an efficient outcome? Explain.
In the above figure, if the economy is initially at an equilibrium output at point A and the interest rate is r1, then an open market purchase of bonds by the Fed will
A) not have any impact on short- or long-run equilibrium real Gross Domestic Product (GDP). B) cause interest rates to decline to r2, investment to decline, and aggregate demand to shift inward to the left. C) cause interest rates to increase and output to decline. D) cause interest rates to decline to r2, investment to increase to I2, and the AD curve to shift upward to the right.
Monetarists believe the best way to halt inflation is to
a. put more money into the economy b. raise taxes c. slow the growth rate of the money supply d. impose controls on prices e. none of the above
The passive approach to resolve a contractionary gap results in a decrease in the price level, and the active approach to resolve a contractionary gap results in an increase in the price level
Indicate whether the statement is true or false