Using the simple Keynesian model with a consumption function of C = 200 + .9Y, an $10 change in desired investment leads to a change in equilibrium income of
A) $10.
B) $100.
C) $20.
D) $90.
B
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If one country's wage level is very high relative to the other's (the relative wage exceeding the relative productivity ratios), then if they both use the same currency
A) neither country has a comparative advantage. B) only the low wage country has a comparative advantage. C) only the high wage country has a comparative advantage. D) consumers will still find trade worth while from their perspective. E) it is possible that both will enjoy the conventional gains from trade.
Johnny owns a house that would cost $100,000 to replace should it ever be destroyed by fire. There is a 0.1% chance that the house could be destroyed during the course of a year. Johnny's utility function is U = W0.5
How much would fair insurance cost that completely replaces the house if destroyed by fire? Assuming that Johnny has no other wealth, how much would Johnny be willing to pay for such an insurance policy? Why the difference?
Explain the Ricardian equivalence theorem
What will be an ideal response?
Economists and policy makers questioned the effectiveness of discretionary fiscal policy during the 1970s for all the following reasons except: a. the difficulty of estimating the natural rate of unemployment
b. the time lags involved in implementing fiscal policy. c. the existence of possible feedback effects of fiscal policy on aggregate supply. d. the distinction between current and permanent income. e. the possible feedback effects of fiscal policy on aggregate demand.