Common sense suggests (and macroeconomists agree!) that sustained economic growth over extended time periods is more important than the economy's short-term fluctuations
Why, then, do macroeconomists (and policymakers, and the general public) care so much about the business cycle?
One reason is impatience. Periods of high unemployment are costly in terms of lost output and personal distress. A portion of lost output is investment that would have contributed to long-run growth. The business cycle involves inflation, also, which causes uncertainty and distorts incentives in ways that lower investment and reduce long-run growth. If inflation is allowed to rise, corrective measures are likely to reduce economic activity, reducing or delaying the desired long-run growth.
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The figure above shows Lauren's demand curve for Barbie dolls and the market price for Barbie dolls. Using the area of the consumer surplus triangle, Lauren's total consumer surplus from purchasing 3 dolls is
A) $5.50. B) $10.00. C) $22.50. D) $45.00. E) 3 dolls.
Negative values of the price elasticity of demand of a good can be attributed to:
A) the Law of Demand. B) the Law of Supply. C) the Law of Increasing Marginal Utility. D) the Law of Diminishing Marginal Rate of Substitution.
Which of the following statements about crowding out is false?
a. It is not caused by a budget surplus. b. It is caused by a budget deficit. c. It can completely offset the multiplier. d. It affects interest rates and not economic growth.
Missy recently rearranged her portfolio so that it has a higher average return. As a result of this rearranging, Missy
a. raised both firm-specific risk and market risk. b. raised firm-specific risk, but not market risk. c. raised market risk, but not firm-specific risk. d. None of the above is correct.