Why does a small difference in the economic growth rate lead to big differences over time?
What will be an ideal response?
Answer: Economic growth rate is the result of multiplier effects of different initiatives taken up by the government and central banks. It is the outcome of positive chain of action that leads to the economic growth. For example, an increase in government spending leads to increase aggregate demand. Aggregate demand leads to increase in supply. It further leads to the new employment opportunities that improves the purchasing power and income of people. It further leads to the increase in aggregate demand. It now pushes the economy towards the full or the natural rate of employment.
Thus, it can be seen that small positive change in growth rate, will have the magnifying impact upon the economy in the long term.
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The Congressional Budget Office estimates that the ratio of publicly held debt to GDP will ________ by 2050 if no entitlement reforms are enacted
A) remain close to the current high level of 73% B) fall to only about 55% C) more than triple to about 250% D) rise to about 130%
For any given tax, imposing a tax in a market with a highly inelastic demand will:
A. cause more deadweight loss than a market with an elastic demand. B. generate higher revenues than a market with an elastic demand. C. Both of these statements are true. D. Neither of these statements is true.
Midwestern corporation issues bonds. Southern corporation issues stock. Which corporation used equity financing?
a. both Midwestern corporation and Southern corporation b. Midwestern corporation but not Southern corporation c. Southern corporation but not Midwestern corporation d. neither Midwestern nor Southern corporation
If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 10, and potential output (Y*) equals 9,000, then government purchases must ________ to eliminate any output gap.
A. decrease by 100 B. increase by 1,000 C. decrease by 1,000 D. increase by 100