Assume that the full-employment level of output is $1,000 and the price level associated with full-employment output is 100. Also assume that the economy's current level of output is $1,100 and at the price level of 100 current aggregate demand is $1,200. If the government wants to move the economy back to the full-employment level of output and the MPC is 0.8, then it should increase taxes by
A. $100.
B. $25.
C. $50.
D. $200.
Answer: C
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Answer the following statement(s) true (T) or false (F)
1. A parallel shift in the budget line is caused by changes in the relative prices of the two goods. 2. Parallel shifts in the budget line are considered when deriving the demand curve for a good. 3. An Engel curve shows the relationship between price and quantity demanded. 4. Normal goods have upward-sloping Engel curves. 5. If an Engel curve is downward sloping, then one of the two goods must be inferior.
Everything else remaining unchanged, what is likely to happen to the equilibrium real interest rate and quantity of credit if the credit supply curve shifts to the left?
A) Both equilibrium rate of interest and quantity of credit will increase. B) The equilibrium rate of interest will increase and the quantity of credit will decrease. C) Both equilibrium rate of interest and quantity of credit will decrease. D) The equilibrium rate of interest will decrease and the quantity of credit will increase.
California voters and legislators frequently debate about the true cost of water in the course of trying to establish state policy to govern the use of water. The issue is confusing because
A) all water is ultimately a free gift of nature. B) the cost of water is infinite. C) water in itself, considered simply as a chemical compound, cannot be assigned any specific cost. D) we cannot settle a question that is entirely a matter of opinion.
For which of the following workers would the income effect be more likely to outweigh the substitution effect of an increase in wage?
a. gardener b. teacher c. professional athlete d. plumber