What are the two meanings of interest in economics?
What will be an ideal response?
Interest refers to the price paid by debtors to creditors for the use of funds and refers to the market return earned by capital as a factor of production.
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A rise in the price of an input can be expected to lead to a rise in its marginal physical product.
Answer the following statement true (T) or false (F)
John Maynard Keynes described periods of irrational pessimism and optimism that affect the investment behavior of firms as animal spirits. When considering the investment behavior of firms, animal spirits can be thought of as changes in the
A) actual marginal product of capital. B) capital stock. C) expected marginal product of capital. D) user cost of capital.
Assume the economy is in recession and real GDP is below full employment. The marginal propensity to consume (MPC) is 0.75, and the government follows Keynesian economics by using expansionary fiscal policy to increase aggregate demand (total spending). If an increase of $1,000 billion aggregate demand can restore full employment, the government should:
a. increase spending by $250 billion. b. decrease spending by $750 billion. c. increase spending by $1,000 billion. d. increase spending by $750 billion.
A legislative lag:
What will be an ideal response?