Discuss what is meant by the paradox of saving
What will be an ideal response?
The paradox of saving refers to the effects of an increased desire to save on output and on the final level of saving. The increased desire to save is equivalent to a reduction in consumption. This drop in demand will cause a drop in output. Furthermore, in this simple economy, the final level of saving will equal the initial level of saving. So, an increased desire to save has a negative effect on the economy and has no permanent effect on the level of saving (because S = I in the simple model).
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Suppose that recent studies conclude that high-fiber diets do not reduce the risk of developing colon cancer as was previously thought. The likely result will be that the:
A. demand for high-fiber foods will decrease. B. quantity demanded of high-fiber foods will fall. C. price of high-fiber foods will rise. D. supply of high-fiber foods will increase.
Long-term trends for private employer-sponsored insurance indicate that:
a. enrollment in the staff-model HMO is becoming more popular. b. there is a resurgence in the popularity of traditional indemnity insurance coverage. c. the continued popularity of the preferred provider organization is reflected by the fact that it is still the fastest growing form of insurance. d. almost one-third of private sector employees covered by group plans are enrolled in some form of high-deductible health plan. e. the high-deductible health plan (HDHP) is now the most popular form of insurance for private sector employees covered by group plans.
Which of the following actions would help the Fed increase the supply of money in the economy?
a. buying government bonds b. raising the reserve ratio c. selling government bonds d. raising the discount rate
You have a mortgage that has a nominal interest rate of 7%. The inflation rate is 3.5%. Your real interest rate is ________.
What will be an ideal response?