On the graph above, suppose the economy is at point 1. Which sequence of points best illustrates the short-run and then long-run impacts if taxes are reduced for one year, then returned to the original level? [Assume that potential output remains
constant at .] A) 7, 2, 5
B) 2, 4, 1
C) 2, 7, 6
D) 7, 8, 1
B
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Under what conditions might a monopoly be more efficient than a perfectly competitive firm?
What will be an ideal response?
A situation in which government intervention in the economy worsens the economic outcome is termed
a. neoclassical failure. b. socialism. c. government failure. d. dependency revolution.
The U.S. economy is not a perfectly competitive market. There are costs associated with negotiating contracts, enforcing agreements, taxes and less than perfectly competitive firms. Nevertheless, according to Wallis and North (1986), the U.S
economy has grown in the presence of these transaction costs and these costs have risen sharply as a percentage of GDP between 1890 and 1970. Indicate whether the statement is true or false
Parvez is trying to decide whether or not he should lend $1,000 to Eli for a year. Eli would pay a fixed nominal interest rate of 8 percent. Parvez expects the inflation rate to be 4 percent for the year. If he does not lend the $1,000 to Eli, Parvez will purchase an indexed savings bond that pays an interest rate of 4 percent, or he will put the money in a (nonindexed) savings account earning 6
percent. Parvez a. will earn 4 percent in real terms if he loans Eli the money, 0 percent in real terms if he buys the bond, and 6 percent in real terms if he puts the money into a savings account b. is better off holding his money as cash c. is indifferent between lending the money to Eli and buying the bond because the real interest rate is the same in either case d. should purchase the bond because it earns the highest real rate of interest e. earns the highest real rate of interest if he puts his $1,000 into a savings account