What are the two main components of business cycle theories?
A. A model of how equilibrium is reached and a description of the government's role in the economy
B. A description of shocks and a model of how the economy responds to them
C. A model of how people decide to spend and a description of the government's role in the economy
D. A description of shocks and a description of the government's role in the economy
Answer: B
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If a commercial bank borrows from the Federal Reserve, the price it pays is
A) zero, there is no payment. B) the prime rate. C) the federal funds rate. D) the discount rate.
In the endogenous growth model presented in the text, suppose that u represents the fraction of time spent working (as opposed to accumulating human capital) and b represents the efficiency of human capital accumulation
The growth rate of human capital equals A) u(1 - b) - 1. B) 1 + b(1 - u). C) (1 + b)(1 - u). D) b(1 - u) - 1.
Answer the following statements true (T) or false (F)
1. The income and substitution effects will both induce the consumer to buy more of a normal good when its price decreases. 2. Someone who pays $800 to fly from one city to another instead of paying only $100 for a bus trip between the two cities is making an irrational choice and is thus not maximizing his utility. 3. If consumers are convinced by ads that Brand X has a lot more value than they originally thought, then the MU/P of X will decrease. 4. The budget line shows all the combinations of two products which the consumer can buy, given money income and product prices. 5. If the quantity of X is measured on the horizontal axis and the quantity of Y on the vertical, then the slope of the budget line is equal to the price of X divided by the price of Y.
2.3 Discretionary Policy
What will be an ideal response?