Refer to the above figure. The government has just engaged in expansionary fiscal policy shifting the aggregate demand curve from AD1 to AD2. Interest rates have started to rise. Which of the following statements is TRUE in the short run?
A) Real GDP will be $14 trillion since the effect of government spending is not influenced by interest rates.
B) Real GDP will end up somewhere between $11 and $14 trillion as businesses and consumers reduce their spending in response to the increase in interest rates.
C) Real GDP will go beyond $14 trillion as businesses and consumers react to the increase in interest rates.
D) Real GDP will fall back to $11 trillion since the effect that increased government spending has on real GDP is short lived.
B
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Which of the following statements is correct for the price elasticity of demand along a linear, downward-sloping demand curve?
A) The price elasticity of demand is constant because the slope is constant. B) At low prices, demand is elastic but at high prices demand is inelastic. C) At high prices, demand is elastic but at low prices demand is inelastic. D) The price elasticity of demand is not defined for a linear demand curve because the slope is constant. E) None of the above answers is correct.
What are price controls? How do they affect a market?
What will be an ideal response?
Suppose that recycling rubber for sneakers creates an external benefit of $2.00 per ton of rubber. There are no external costs. The efficient amount of rubber will be recycled when the government creates a
A) subsidy of more than $2.00 per ton of rubber. B) subsidy of $2.00 per ton of rubber. C) tax of more than $2.00 per ton of rubber. D) tax of $2.00 per ton of rubber.
Which of the following is a bank asset?
A) checkable deposits B) savings deposits C) borrowings in the federal funds market D) cash items in the process of collection