If a budget deficit increases interest rates, it is possible that investment will
a. fall, leading to a larger capital stock.
b. fall, so that there is a smaller capital stock.
c. rise, because investment is directly related to interest rates.
d. rise, because investment is more attractive when interest rates are higher.
b
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The figure above shows that the deadweight loss from the government's policy is
A) about $350 million. B) about $25 million. C) about $50 million. D) about $100 million. E) zero.
The yield to maturity on a new one-year discount bond equals
A) (F V- P)/P. B) (D - FV)/P. C) (FV - P)/FV. D) (P - FV)/FV.
The external costs of alcohol consumption are related to, among other things, death and injury related to auto accidents caused by drunk drivers. These costs have been estimated to be about 47 cents per ounce of alcohol consumed. Taxes on alcohol amount to 23 cents per ounce. This suggests that alcohol consumption is (i) greater than the efficient or optimal amount; (ii) should be reduced to zero to eliminate the externality.
A. i and ii B. i not ii C. ii not i D. neither i nor ii
What happens in the long run after an increase in government spending growth?
A. Inflation expectations adjust and the SRAS curve shifts backwards. B. The AD curve remains permanently in its new position. C. The LRAS curve shifts out to match the increase in AD. D. The AD curve shifts back to its original position.