An increase in government spending can raise wages and prices in the short term.
Answer the following statement true (T) or false (F)
True
The possibility of inflation is one of the limitations of spending stimulus.
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Suppose a Chinese restaurant provides free tea to its customers. In the economic way of thinking, the restaurant is
A) engaging in predatory pricing of its meals. B) engaging in predatory pricing of tea. C) selling Chinese food below cost. D) doing all of the above. E) almost certainly doing none of the above.
Suppose Ukraine subsidizes Ukrainian wheat farmers, while Russia offers no subsidy to Russian wheat farmers. As a result of the Ukrainian subsidy, sales of Ukrainian wheat to Russia
a. may prompt Russian farmers to invoke the infant-industry argument. b. increase the consumer surplus of Russian buyers of wheat. c. decrease the total surplus of the Russian people. d. All of the above are correct.
Consider an incumbent that is a monopoly currently earning $1 million annually. Given the declining costs of raw materials, the incumbent believes a new firm may enter the market. If successful, a new entrant would reduce the incumbent's profits to $750,000 annually. To keep potential entrants out of the market, the incumbent lowers its price to the point where it is earning $850,000 annually for the indefinite future. If the interest rate is 5 percent, does it make sense for the incumbent to limit price to prevent entry?
A. No, since $5 million > $100,000. B. Yes, since $2 million > $150,000. C. Yes, since $150,000 > $5 million. D. No, since $2 million > $150,000.
The contributive standard of income distribution is met by
A) setting wages according to marginal productivity. B) having a highly progressive income tax. C) having the government determine all wages. D) using local committees to determine the needs of families in the area.