Ch 1.The opportunity cost of an action is best defined as which of the following?
What will be an ideal response?
The value of the best opportunity that must be sacrificed in order to take the action.
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The government wishes to close an inflationary gap by reducing real GDP by $400 billion. Assuming a tax multiplier of 4 and an income multiplier of 5, which of the following policy prescriptions would reduce the inflationary gap by $400 billion?
a. Decreasing government spending by $400 billion and increasing taxes by $400 billion. b. Decreasing government spending by $160 billion and decreasing taxes by $100 billion. c. Decreasing government spending by $40 billion and decreasing taxes by $40 billion. d. Decreasing government spending by $80 billion and keeping taxes the same. e. Doing absolutely nothing to the economy.
The Federal Reserve System was established
a. at the request of farmers to keep down interest rates. b. because Americans believe in centralization of authority. c. after four severe bank panics between 1873 and 1907. d. as part of the Treasury Department.
A futures contract
A) gives the owner the right, but not the obligation, to buy shares of a stock at a specified price within the time limits of the contract. B) gives the owner the right, but not the obligation, to sell shares of a stock at a specified price within the time limits of the contract. C) is a contract in which the seller agrees to provide a particular good to the buyer on a specified future date at an agreed-upon price. D) gives the owner the right, but not the obligation, to buy or sell shares of a stock at a specified price within the time limits of the contract.
The principal way in which an economy self-corrects from an inflationary gap is through
A. deflation, which increases purchasing power. B. inflation, which reduces purchasing power. C. disinflation, which maintains purchasing power. D. price level decreases, which stimulate production.