Explain why the marginal propensity to save and the marginal propensity to consume sum to 1
People do two things with their income: spend it or save it. What is not spent is necessarily saved. If Libby's income increases by $100 . she will spend, say, $75 on consumption (her MPC = 0.75) which
means she will save $25 (her MPS = 0.25). 0.75 + 0.25 = 1.00
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A hypothesis that assumes that people combine the effects of past policy changes on economic events and their own judgment about future effects of current and future policy changes is known as
A) active expectations. B) modern expectations. C) rational expectations. D) adaptive expectations.
The most frequently reported price index is ________
A) the consumer price index (CPI) B) the gross domestic product (GDP) deflator C) the personal consumption expenditure (PCE) deflator D) chain weighted GDP E) the interest income deflator
A monopolist has determined that at the current level of output the price elasticity of demand is -0.15. Which of the following statements is true?
A) The firm should cut output. B) This is typical for a monopolist; output should not be altered. C) The firm should increase output. D) None of the above is necessarily correct.
As Bubba's Bubble Gum Company adds workers while using the same amount of machinery, some workers may be underutilized because they have little work to do while waiting in line to use the machinery. When this occurs, Bubba's Bubble Gum Company encounters
a. economies of scale. b. diseconomies of scale. c. increasing marginal product. d. diminishing marginal product.