When a government has a large budget deficit, it must issue government bonds to finance the deficit. Explain if it matters for the rate of inflation if the government sells the bonds to the public or sells the bonds to the central bank?
What will be an ideal response?
Whether the government sells bonds to the public or to the central bank matters greatly with respect to inflation. When the government sells bonds to the public, the money supply does not change, but when the bonds are sold to the central bank, the money supply increases. If there are large budget deficits, the money supply will increase substantially when the central bank buys government bonds. Using the quantity theory of money, the increase in the money supply from the purchase of the bonds by the central bank will increase the inflation rate.
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The price of a hotdog is $1, the price of a movie ticket is $5, and the consumer has $13. A consumer has purchased 3 hotdogs and two movie tickets, receiving 10 units of utility for the last hotdog and 10 units of utility for the last movie. The set of goods
A. is an optimum because the consumer has maximized her utility given the limited income she had. B. is not an optimum because the marginal utility for the second hotdog was less than the marginal utility for the first hotdog. C. is not an optimum because the marginal utility per dollar spent is greater for the hotdog than for the movie. D. is an optimum since the entire income is spent and the marginal utility is the same for the last unit of each good.
If a consumer is at an optimum, consuming X and Y, and the price of Y increases, then to get to a new equilibrium the consumer must
A. purchase more of both X and Y. B. purchase more X. C. purchase less X. D. purchase less of both X and Y.
Assuming no externalities exist, if a good's price is more than its marginal cost, then the benefits consumers derive are ________ than the cost of resources needed to produce it and ________ should be produced.
A. greater; more B. less; more C. less; less D. greater; less
Refer to the data. Marginal product becomes negative with the hiring of the __________ unit of labor
.
A. third
B. fourth
C. sixth
D. seventh