A rise in the price level has a direct effect on spending because
A. the real value of the money people have decreases and they can buy less with it.
B. the real value of the money people have varies directly with the price level.
C. a higher price gives people more money, and so the more goods and services they can buy.
D. people like to spend more when prices are higher.
Answer: A
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Why do prices have to be based on supply and demand, rather than cost?
A) Costs, unlike supply and demand, are based on subjective factors. B) People cannot be compelled to base prices on costs C) People should be free to set whatever prices they prefer. D) Supply and demand determine costs. E) Because basing prices on costs is less efficient than basing prices on supply and demand.
A profit-maximizing firm will never hire that quantity of a factor of production for which that factor has an increasing marginal productivity because:
a. it would not be maximizing output. b. it would not be maximizing the productivity of labor. c. it would not be minimizing costs. d. it would not be maximizing profits.
The basic goals of total utility maximization, total profit maximization, and total welfare maximization explain most market activity.
Answer the following statement true (T) or false (F)
If at the prevailing interest rate the quantity of money demanded is $2 trillion, and the supply of money is $1.5 trillion, then which of the following is true?
A. There is a shortage of money, and consequently interest rates must fall in order to achieve an equilibrium in the money market. B. There is a surplus of money, and consequently interest rates must fall in order to achieve an equilibrium in the money market. C. There is shortage of money, and consequently interest rates must rise in order to achieve an equilibrium in the money market. D. There is a surplus of money, and consequently interest rates must rise in order to achieve an equilibrium in the money market.