In what ways is the government debt a burden on future generations?
What will be an ideal response?
There are two different burdens. First, a large debt can reduce the amount of capital in the economy and thereby reduce future incomes and real wages. Second, a large national debt will mean future generations will have to pay higher taxes to finance the interest on the debt.
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Suppose the government want to increase aggregate demand without increasing interest rates. You would recommend
a. reducing transfer payments and increasing the money supply. b. increasing government spending and reducing the money supply. c. increasing taxes and the money supply. d. increasing government spending and the money supply.
The following is an example of the moral-hazard problem: Homebuyers do not properly evaluate the risks involved in buying a home, because they are assuming the government will bail them out of a bad mortgage as it has done before.
Answer the following statement true (T) or false (F)
The federal budget has three components. Name them.
What will be an ideal response?
In Figure 12.6, airline Fly Smart is initially a secure monopoly between two cities X and Y at point M, serving 300 passengers per day at the profit maximizing price of $300 per ticket. Suppose that Fly Smart discovers that a second airline is contemplating entering the market. If the minimum market entry quantity is zero passengers per day, what is Fly Smart's profit when it commits to the entry-deterring quantity?
A. $60,000 B. $44,400 C. $33,600 D. $0