Shocks to the economy often result in calls for government action to correct the imbalances these shocks create. Why don't markets tend to correct these imbalances quickly by themselves?
A. Government policy is the primary cause of shocks, so government policy is the only way to correct the imbalances they create.
B. Product prices are often "sticky" or inflexible, keeping markets from correcting imbalances quickly.
C. Prices adjust too quickly for markets to correct imbalances.
D. Buyers and sellers in markets don't react rationally when shocks occur.
Answer: B
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Bill lives in Montana and likes to grow zucchini. He applies fertilizer to his crops twice during the growing season and notices that the second layer of fertilizer increases his crop, but not as much as the first layer. What economic concept best explains this observation?
a. The law of diminishing marginal utility. b. The law of diminishing returns. c. Return equalization principle. d. The principal-agent problem.
Suppose Congress and the President are negotiating over whether to increase spending on defense or higher education, economists would suggest that they set the amount of spending
A. where the total benefit to each is equal. B. on each program. C. constant. D. where the average amount spent per student equals the average amount spent per soldier.
That portion of corporate profits which is included in personal income is:
A. Dividends B. Corporate income taxes C. Consumption of fixed capital D. Undistributed corporate profits
The country with the second-highest GDP in the world, behind only the United States, is
A. Russia. B. Germany. C. China. D. India.