Suppose that the federal government imposes a price floor (support price) in the milk market at a price of $3 per gallon. If market quantity demanded at $3 is 1 billion gallons, and if market quantity supplied is 1.5 billion gallons, then which of the following is true?
a. There is a surplus of 1 billion gallons of milk, and the federal government will buy 1.5 billion gallons to maintain the $3 price.
b. There is a shortage of 500 million gallons of milk, and the federal government will buy 1 billion gallons to maintain the $3 price.
c. There is a shortage of 500 million gallons of milk, and the federal government will buy an additional 500 million gallons to maintain the $3 price.
d. There is a surplus of 500 million gallons of milk, and the federal government will buy this 500 million gallons to maintain the $3 price.
d
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The self-correcting tendency of the economy means that falling inflation eventually eliminates:
A. exogenous spending. B. recessionary gaps. C. expansionary gaps. D. unemployment.
Which of the following statements is correct?
A) Dynamic open market operations are carried out to offset fluctuations in the monetary base. B) Defensive open market operations are carried out to change monetary policy. C) The volume of defensive open market operations is much greater than the volume of dynamic open market operations. D) Defensive open market operations are usually carried out through outright purchases or sales.
The self-correcting property of the economy means that output gaps are eventually eliminated by:
A. increasing or decreasing potential output. B. government policy. C. decreasing inflation only. D. increasing or decreasing inflation.
Some economists criticize the Lorenz curve because it
A) includes too many things in measuring income, such as food stamps, housing aid, and other government programs. B) does not account for the effect of age on a family's income. C) measures unreported income earned in the underground economy. D) uses after-tax income when pre-tax income is more appropriate.