The marginal propensity to consume (MPC) is the change in consumption divided by the change in saving
a. True
b. False
Indicate whether the statement is true or false
False
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Which of the following is not a primary cause of business cycle fluctuations, according to real business cycle theory?
A) A change in the production function B) A change in the size of the labor force C) A change in the money supply D) A change in the real quantity of government purchases
A tax on suppliers will cause the supply curve to shift
A. up. B. down. C. right. D. left.
Consider the accompanying diagram, which shows an investor who can choose to hold the risky assets on the efficient set and/or the risk-free asset labeled R.
(i) Describe the portfolio held by this investor.
(ii) Suppose the expected return of the risk-free asset increases. Complete the diagram to show how the investor responds to this change. Describe how the market portfolio changes, and describe the new portfolio held by the investor.
(iii) Assume that as the investor's income rises, he prefers that his portfolio have a higher expected return and a lower standard deviation. When the expected return of the risk-free asset rises, does the expected return of the investor's portfolio rise or fall? Does the standard deviation of the investor's portfolio rise or fall? Explain, using substitution and income effects.
The AB Manufacturing Company has hired an economist to evaluate its financial situation. She explains to the board of directors that the company is making zero economic profit. Should the company go out of business?