Refer to the above figure. Suppose that the economy initially is operating along AD1. If the government seeks to close the recessionary gap by raising government spending without any change in taxation, which moves the aggregate demand curve from AD1 to AD2, then to AD3. Which of the following scenarios is TRUE?
A. Interest rates rise and investment falls.
B. Both interest rates and investment rise.
C. Interest rates fall and investment rises.
D. Both interest rates and investment fall.
Answer: A
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The circular flow model is all of the following except
a. an abstraction from reality b. a model of two markets c. a model of two agents d. a simple economic model e. designed to aid policy makers
A ______ cost is ______ if the firm incurs the cost even if it produces no output.
A. fixed; sunk B. fixed; explicit C. variable; sunk D. fixed; avoidable
Lunch in Jamie's dorm is an all-you-can-eat buffet, served from 11 a.m. until 1 p.m. By noon, the buffet is picked over, and by 12:30, there are very few popular items left. The garbage bins, though, are full of food. Over time, you would expect that students would:
A. start distributing themselves more evenly over the lunch hours to avoid long lines. B. come earlier and earlier for lunch in order to have a better selection from which to choose. C. stop eating so much at lunch because they would notice that it generates waste. D. be pickier in their selections from the buffet.
According to economic theory, how do people make decisions?
A. They make decisions in the same manner as their parents did. B. They make decisions based on their own self-interest. C. They make decisions by looking at what others have done in the same situation and then doing the opposite. D. They make decisions by looking at what others have done in the same situation and then doing the same.