Figure 10.2 A Macroeconomic Model with Government Spending and Taxes
What will be an ideal response?
The model shows two sets of leakages and injections into the circular flow: savings (leakage) and intended investment (injection), and net taxes (leakage) and government spending (injection). These may or may not balance out at a full employment level of output.
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The behavior of the perfectly competitive firm: a. theoretically leads to an inefficient allocation of resources
b. maximizes the benefits to consumers, given the resources available to the economy. c. reduces output in order to raise prices in the short-term. d. results in excess capacity and inefficiency.
Determine the range of abatement within which policy achieves positive net benefits.
Suppose that the benefits and costs of water quality policy have been estimated as follows: MSB = 40 – 0.8A MSC = 10 + 0.2A TSB = 40A – 0.4A2 TSC = 10A + 0.1A2, where A is the percentage of pollution abatement and the benefits and costs are measured in thousands of dollars.
The root of the savings and loan debacle was
A. the corruption of management. B. the low rates of interest paid to the depositors. C. long term (30-year) outstanding loans at extremely low interest rates. D. high risk short term loans.
If cats become a more popular pet in the United States than they are now, what can we expect to happen to the market for cat food workers?
A. MP increases B. MRP increases C. wage decreases D. MRP decreases