When the supply of credit is fixed, an increase in the price level stimulates the demand for credit, which in turn reduces consumption and investment spending. This argument is called the:
a. real balances effect.
b. interest-rate effect.
c. net exports effect.
d. substitution effect.
b
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Suppose the economy is initially at equilibrium, in which total planned real expenditures equals real GDP. Which of the following will occur if there is an increase in autonomous investment?
A) Inventories will decrease immediately and production of goods and services will increase until real GDP catches up with total planned real expenditures. B) Inventories will increase immediately and production of goods and services will decrease until real GDP catches up with total planned real expenditures. C) Inventories will not change and production of goods and services will not change either. D) Both inventories and production of goods and services will increase.
The Congressional Budget Office estimates that most of the increase in federal spending on Medicare and Medicaid will be due to
A) increases in immigration. B) the aging population. C) declining income levels. D) increases in the cost of providing health care.
After people buy insurance, they are more likely to build a beach house out of wood framing rather than concrete block. This is an example of
A) risk aversion. B) moral hazard. C) risk neutrality. D) free riding in teams.
An economy experiences growth if it produces more goods and services in a year than it did in the year prior.
Answer the following statement true (T) or false (F)