Explain the impact of the multiplier effect through the business cycle.
What will be an ideal response?
During an expansion, the depletion of inventories and improvement in profit margins cause firms to increase output. In addition, low interest rates and the aging of capital encourage investment. The multiplier effect then leads to a cumulative effect of rising output, employment, and income. During a peak, production costs rise more rapidly and inventories accumulate, causing firms to cut back on production. Rising interest rates discourage investment. Thus, the multiplier effect contributes to falling output, employment, and income—or a contraction.
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Over the past several years and until recently, the United States has had lower unemployment rates than most European countries.
Answer the following statement true (T) or false (F)
The exchange rate is the
a. ratio of exports to imports b. interest rate the U.S. government charges on international transactions c. pricing policy of goods scheduled for export d. price of one nation's currency in terms of another nation's currency e. price that central banks charge each other for currency exchanges
The more inelastic the demand for a product, the more the actual burden of a tax on the product will:
a. fall on sellers. b. fall on buyers. c. fall equally on both buyers and sellers. d. create a larger deadweight loss (or excess burden).
A gaming strategy in which one player states that he/she would break the agreement for eternity if his/her co-player breaks the agreement once is called:
a. a grim trigger. b. a credible threat. c. a chain-store paradox. d. a dominance pull.