The most likely explanation for why the U.S. government was not worried about the growth in deficits caused by expansionary policy was they:
A. expected that the economy would grow out of the deficit.
B. knew they could pass significant tax increases to manage the deficit.
C. wanted to make the dollar exchange rate favorable compared to the Yuan.
D. wanted inflation to occur in order to wipe out the value of government debt.
Answer: A
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The assumption that individuals act rationally implies that
a. people think only of themselves and disregard the well-being of others b. people undertake all those activities that yield benefits to themselves c. people only consider the costs of an activity to decide whether it is worthwhile d. the greater the cost of a charitable deed to a benefactor, the more likely he or she is to perform that deed e. people implicitly calculate the costs and benefits of an activity to decide if it is worthwhile
Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces fish and bird reproduction. This causes damage to local fishermen and bird watchers. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird watchers will not suffer any damage. The relevant gains and losses (in thousands of dollars) for the three parties are listed below. WithFilterWithoutFilterGains to Erie$200$400Fisherman$180$50Bird Watchers$130$25If all three parties can communicate and negotiate with each other at no cost, will Erie Textiles use a filter?
A. No, because it makes $200 less in profit with the filter. B. Yes, because the benefit it would receive from being able to advertise that it acts in an environmentally responsible way exceeds the cost of using a filter. C. Yes, because fishermen and bird watchers are willing to pay enough to Erie Textiles to offset the cost of using a filter. D. No, because use of a filter would result in smaller total economic surplus.
Other things equal, if the fixed costs of a firm were to increase by $100,000 per year, which of the following would happen?
A. Marginal costs and average variable costs would both rise. B. Average fixed costs and average variable costs would rise. C. Average fixed costs and average total costs would rise. D. Average fixed costs would rise, but marginal costs would fall.
In Figure 3-7 above, if the natural real GDP is $2500, AP = $250, and the change in "a" = change in I = change in NX = 0, then the natural real GDP could be attained with a
A) $250 decrease in T. B) $250 increase in G. C) $1250 increase in G. D) $500 decrease in T.