In an economy with no inflation, explain why interest rates are positive
What will be an ideal response?
Because most people prefer consumption today relative to consumption tomorrow, they must be compensated for delaying consumption. Interest is the compensation for the delay in consumption.
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Explain the principle of the "second best."
What will be an ideal response?
Refer to Figure 1. The figure represents a circular-flow diagram. Boxes C and D represent
a. households and government.
b. firms and government.
c. the markets for goods and services and the financial markets.
d. None of the above are correct.
Which of the following is not included in employee compensation?
A. Interest payments from businesses to households B. Social security taxes paid to the government by employers C. Salaries D. Fringe benefits
The output of a government is equal to government consumption plus government investment.
Answer the following statement true (T) or false (F)