Which of the following best describes a typical business cycle?
A) Economic expansions are followed by economic contractions.
B) Inflation is followed by unemployment.
C) Trade surpluses are followed by trade deficits.
D) Stagflation is followed by inflationary economic growth.
A
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When Ford hires Ernst and Young Consulting to help Ford redesign its marketing, Ford's payment to Ernst and Young is classified as
A) an explicit cost. B) depreciation. C) an implicit cost. D) normal profit. E) economic profit.
If taxes are cut, there is
A) an increase in aggregate demand and the AD curve shifts rightward. B) a decrease in aggregate demand and the AD curve shifts leftward. C) an increase in the quantity of real GDP demanded and a movement up along the AD curve. D) a decrease in the quantity of real GDP demanded and a movement down along the AD curve. E) no change in aggregate demand, only a change in potential GDP.
Suppose the only two goods you care about in the world are French wine (x) and Cuban cigars (y) and your utility function is given by u(x,y)=xy. You have no income, and the only thing in the world you possess is a large box you have just inherited from your rich uncle who passed away last week (of liver and lung cancer.) You open the box, and much to your liking, you find it contains 9 bottles of fine French wine and 3 boxes of exquisite Cuban cigars. Currently, the wine sells for $1 per bottle, and the cigars sell for $9 per box. Just as you receive the inheritance, you read the headline: "President Lifts Embargo - Price of Cuban Cigars Falls to $4 per Box!" a. Determine the income (or wealth) and substitution effects of a decrease of the price of cigars from 9 to 4. (Assume
fractions of bottles and cigars can be bought.) b. Are cigars a normal or inferior good for you? c. How much would you have been willing to pay the President in order not to lift the embargo? What will be an ideal response?
Payments to shareholders from corporate profits are known as:
A. dividends. B. capital gains. C. interest. D. appreciation.