Starting from long-run equilibrium, a large decrease in government purchases will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. expansionary; lower; potential
B. expansionary; higher; potential
C. recessionary; lower; potential
D. recessionary; lower; lower
Answer: C
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Explain how positive externalities cause a wedge between private marginal costs and social marginal costs. Give an example of a positive externality and explain why it is, in fact, a positive externality. Draw a supply/demand diagram and add a social marginal cost curve that represents the presence of the positive externality. Explain the relationship between the equilibrium quantity and that which is socially efficient.
What will be an ideal response?
Which of the following is a reason why Fed policy might be ineffective?
A. The wealth effect B. Crowding out C. The liquidity trap D. The foreign substitution effect
Suppose a plaintiff hires a lawyer to represent her in a court case. The lawyer will be paid by the hour. Under this contract
A) efficiency is not achieved. B) the client bears all of the risk. C) the lawyer has an incentive to lie about his hours worked. D) All of the above.
Even if we were able to completely eliminate greenhouse gas (GHG) emissions today, the problems associated with the accumulated stock of GHGs in the atmosphere will persist for a long time because:
A) their dissipation rate is very low. B) their dissipation rate is very high. C) the social discount rate is very low. D) the social discount rate is very high.