If the objective of economic policy is to decrease the amount of pollution by an industry in the long run, the
A. most effective policy action would be a subsidy to firms for the reduction of emissions.
B. most effective policy action would be a tax on polluting firms.
C. appropriate course of action for government is to do nothing.
D. appropriate course of action for government is to increase R&D outlays to develop technology to remove the emissions from the environment.
Answer: B
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The economy pictured in the figure below has a(n) ________ gap with a short-run equilibrium combination of inflation and output indicated by point ________. 
A. recessionary; B B. recessionary; C C. recessionary; A D. expansionary; A
Tampering with the price mechanism
A. can be efficient for a while. B. cannot be attempted in a market economy. C. can enhance societal welfare if done properly. D. often produces undesired side effects.
Refer to the scenario above. Which of the following statements is true?
A) The discounted value of $3,400 to be received after five years is $3,000. B) Tom's return from investing in his friend's project is higher than the amount received from the bank after five years. C) Tom's return from investing in the bank is higher than the amount received from his friend's project after five years. D) The returns on both investments are likely to be similar and Tom should be indifferent about investing in either options.
Damian is texting while driving and ends up slamming into the back end of the car in front of him, which then strikes the car in front of it. By texting while driving, Damian has created a
A. negative externality. B. positive externality. C. nonexcludable public good. D. marginal social benefit.