The Second Theorem of Welfare Economics states that:
a. all Walrasian equilibria are also social welfare maxima.
b. social welfare maxima will usually be Pareto inefficient.
c. any social welfare maximum can be a Walrasian equilibrium with suitable transfers of initial endowments.
d. all Pareto optimal allocations are social welfare maxima.
c
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Proponents of the interest-rate-based monetary policy transmission mechanism argue that when the Federal Reserve buys bonds, there will be
A) an increase in investment spending. B) a decrease in the money supply. C) a decrease in nominal Gross Domestic Product (GDP), but not in real income. D) a decrease in the price of outstanding bonds.
An increase in the excess reserves banks want to hold, together with people depositing currency into their demand deposit accounts, would: a. increase the money supply
b. decrease the money supply. c. leave the money supply unchanged. d. have an indeterminate effect on the money supply.
The economy is currently operating at a point on its physical production possibilities frontier (physical PPF). It is
A) producing Natural Real GDP and operating below the natural unemployment rate. B) producing more than Natural Real GDP and operating above the natural unemployment rate. C) producing more than Natural Real GDP and operating below the natural unemployment rate. D) in long-run equilibrium.
The specificity rule states that
A. Tax rates should vary according to specific characteristics of a product. B. it is more efficient to use a policy tool that is closer to the distortion that is caused by an externality. C. a government tax is the best remedial measure for an externality. D. property rights must be changed to correct for an externality.