According to the Solow model, which type of government spending is more likely to raise the long-term growth rate of output per person, spending on infrastructure or spending on research and development?
What will be an ideal response?
Spending on research and development. As a production input, infrastructure is much like capital, subject to diminishing returns. Infrastructure investments are likely to raise the level of output per person, but any effect on the growth rate is likely to be temporary. Spending on research and development, when effective, raises productivity directly. There are no diminishing returns, and improvements in technology may stimulate and enable further improvements, including those funded by private businesses.
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If a firm could practice perfect price discrimination, it would
A) allow resale of its product. B) use odd pricing. C) charge every buyer a different price. D) charge a price based on the quantity of a product bought.
How might a budget deficit affect the balance of trade?
A) A budget deficit reduces interest rates, which reduces exchange rates and reduces the balance of trade. B) A budget deficit raises interest rates, which raises exchange rates and reduces the balance of trade. C) A budget deficit raises interest rates, which raises exchange rates and increases the balance of trade. D) A budget deficit reduces interest rates, which raises exchange rates and reduces the balance of trade.
Which theory explains all three facts about the term structure?
A) expectations B) segmented markets C) preferential treatment D) liquidity premium
When Americans build a factory in Costa Rica, the transactions associated with this factory are recorded in the ________ of the U.S. balance of payments
a. current account b. capital account c. balance of trade d. export of services e. none, because it does not involve U.S. dollars