In an indifference curve/budget line framework, how does a consumer decide which of all possible combinations of goods to purchase?
What will be an ideal response?
The consumer will select the combination of goods and services that he or she most prefers and which he or she can afford to buy. Taking the latter consideration first, the consumer will buy a combination of goods and services that lie upon the budget line because all of these combinations are affordable. From the combinations that lie upon the budget line, the consumer will select the combination that is on the highest indifference curve because this is the combination that is most preferred.
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Define vertical equity and horizontal equity. How do tax loopholes sometimes create vertical and horizontal inequity?
What will be an ideal response?
If planned aggregate expenditure (PAE ) in an economy equals 2,000 + 0.8Y and potential output (Y*) equals 11,000, then this economy has:
A. no autonomous expenditure. B. a recessionary gap. C. no output gap. D. an expansionary gap.
Two economists can agree that raising the minimum wage creates unemployment yet one might argue that raising the minimum wage is a good policy and the other that it is a bad policy
Why can this difference exist? Be sure to use the terms positive and normative in your answer.
Suppose a country is much richer than the others in the Solow growth model. What happens in the long run?
A) The other countries catch up to the rich one. B) The rich country grows the fastest. C) The rich country becomes poorer than the others. D) Nothing.