According to our basic analysis, the cure for inflation should be fairly straightforward. If the problem is too much aggregate demand
What will be an ideal response?
the solution is to reduce aggregate demand. We could do this by reversing the process discussed in the previous section and lowering government spending on goods and services. A similar effect can be obtained by reducing transfer payments or by increasing taxes. With lower transfer payments or higher taxes, businesses and consumers will have less spending power. Lower spending by government, businesses, and consumers will result in a lower equilibrium output level, and there will no longer be excess demand pressures to create inflation
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A price ceiling does NOT lead to a deadweight loss if ________
A) the equilibrium market price lies below the price ceiling B) the equilibrium market price lies above the price ceiling C) the price elasticity of market demand is greater than 1 D) the price elasticity of market supply is greater than 1
When a firm links its employees' compensation to the performance of the firm, the firm is using
A) an incentive system. B) a command system. C) a cooperative system. D) an agency system.
Vouchers create the efficient outcome only if production is such that the marginal social cost
A) exceeds the marginal private benefit. B) equals the marginal external benefit. C) equals the marginal social benefit. D) is decreased so it equals the marginal private cost.
Why do people keep currency in their pockets when bank deposits pay interest?
A) Because banks might steal your money. B) Because currency is more liquid. C) Because bank deposits lose value due to inflation. D) Because bank deposits lose value due to changes in interest rates.