Use the aggregate expenditures model and assume an economy is in equilibrium at $6 trillion which is $500 billion above full-employment GDP. If the marginal propensity to consume (MPC) is 0.75, full-employment GDP can be reached if government spending:
a. decreases by $75 billion.
b. decreases by $125 billion.
c. decreases by $500 billion.
d. is held constant.
b
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Which of the following represents the true economic cost of production when firms produce goods that cause negative externalities?
A) the external cost of production B) the explicit cost of production C) the social cost of production D) the private cost of production
In a two-period model with default, the nation defaults on its debt in the current period if
A) the market interest rate is high, the cost of defaulting is low, and national debt is high. B) the market interest rate is low, the cost of defaulting is low, and national debt is high. C) the market interest rate is high, the cost of defaulting is high, and national debt is low. D) the market interest rate is low, the cost of defaulting is high, and national debt is low.
If there is a surplus in the market for loanable funds, then the interest rate
a. rises, so national saving rises. b. rises, so national saving falls. c. falls, so national saving rises. d. falls, so national saving falls.
A perfectly competitive firm can maximize profits by producing the quantity at which MR exceeds MC by the greatest amount.
Answer the following statement true (T) or false (F)