Assume that the MPC is 0.75. If government spending increases by $400, equilibrium output ________; and if taxes increase by $400, equilibrium output ________.
A. increases by $1,600; decreases by $1,600
B. increases by $1,200; decreases by $1,600
C. increases by $1,600; decreases by $1,200
D. increases by $400; decreases by $400
Answer: C
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If short-run equilibrium output equals 50,000 and potential output (Y*) equals 45,000, then this economy has a(n) ________ gap that can be closed by ________.
A. expansionary; decreasing government purchases B. expansionary; increasing transfer payments C. expansionary; decreasing taxes D. recessionary; increasing government purchases
The above figure shows a firm in monopolistic competition. At the profit maximizing level of output, excess capacity for the firm is equal to
A) 0 units per day. B) 4 units per day. C) 8 units per day. D) 16 units per day.
Adverse selection is due to
A) hidden characteristics. B) hidden actions. C) symmetric information. D) moral hazard.
Nominal GDP includes the current value of services produced in the economy
a. True b. False Indicate whether the statement is true or false