Explain the concept of "crowding out" in a closed economy
What will be an ideal response?
In a closed economy, GDP consists of consumer spending, investment spending and government purchases. If we consider the economy to be at full employment, then GDP is considered fixed. If government spending increases, other components of the fixed GDP must decrease. In this sense, increased government spending reduces, or "crowds out" other components of GDP—investment spending and/or consumer spending.
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A production quota program:
A. imposes limits on the quantity that individual firms can produce. B. is a way to reduce prices without causing the overconsumption that occurs under a price support program. C. places limitations on the quantity that individual consumers can purchase. D. is like a subsidy in that it reduces the price that buyers pay for a good.
Comparing how many dollars it takes you to run your car each year to annual earnings on a job instead of keeping track of costs in terms of gallons of gasoline and quarts of oil represents the use of money as a:
a. means of payment. b. unit of account. c. store of purchasing power. d. form of plastic money.
The metaphor used to describe the working of the price system to achieve efficiency in a free market is
A. Occam’s razor. B. the prisoner’s dilemma. C. the invisible hand. D. the benefit principle.
The price mechanism solves the "for whom" problem by assigning high prices to goods in high demand and letting customers choose whether to purchase them
a. True b. False Indicate whether the statement is true or false