In the above figure, the economy is at point a on the initial supply of loanable funds curve SLF0. What happens if the real interest rate rises?
A) Nothing; the economy would remain at point a.
B) There would be a movement to a point such as b on supply of loanable funds curve SLF0.
C) The supply of loanable funds curve would shift rightward to a curve such as SLF2.
D) The supply of loanable funds curve would shift leftward to a curve such as SLF1.
B
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Proportional income taxation is distorting because
A) people do all they can to avoid paying taxes. B) the competitive equilibrium is not Pareto optimal. C) firms do all they can to avoid paying taxes. D) the government budget constraint does not hold.
Sara looks into her closet and discovers a pair of like-new shoes she no longer wears because they give her blisters. From the economist's perspective, was Sara behaving rationally when she bought those shoes?
A) No. If any of a person's decisions have poor results, that person is irrational. B) Yes, as long as Sara didn't intentionally purchase blister-causing shoes. C) No. The rationality assumption states that rational people never make mistakes. D) It's not clear because psychology, not economics, deals with the rationality assumption.
An example of price floor is
a. Minimum wages b. Rent controls in New York c. Both a and b d. None of the above
To eliminate a recessionary gap, the Fed can: a. increase the money supply as it will increase the interest rate and investment
b. increase the money supply as it will decrease the interest rate and increase investment. c. decrease the money supply as it will increase the interest rate and investment. d. decrease the money supply as it will decrease the interest rate and investment. e. decrease the money supply as it will increase the interest rate and decrease investment.