In the Keynesian model with government and the foreign sector added, what are the components of spending? Which of these components are autonomous and which are not? How is the equilibrium found?
When the economy is not at an equilibrium, what adjustments are made?
There are four components to spending—consumption, investment, government, and net exports. The last three are autonomous and consumption has an autonomous part to it. However, consumption is also a function of income. Equilibrium is found at the point at which total planned real spending (C + I + G + X) exactly equals real Gross Domestic Product (GDP). When the economy is not at an equilibrium, adjustments are made by unplanned inventory changes.
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If the demand for the Ford Mustang increases, we would expect Ford to
A) keep the price of Mustangs constant, regardless of the cost or benefit of a price change. B) increase the price of Mustangs to keep pace with the increase in demand. C) increase the price of Mustangs only if the benefit of a price increase outweighs the cost. D) decrease the price of Mustangs to maintain the increase in demand.
Explain what rent seeking is and how it may reduce the benefits of industrial policies
What will be an ideal response?
The conflict between the Vice President of Marketing and her sales staff arises because
a. the sales staff are unwilling to offer discounts b. the Vice President does not want to negotiate aggressively enough to maximize profits c. the sales staff want to negotiate too aggressively d. the Vice President is more willing to offer discounts to make the sale
Most economists believe that a cut in tax rates
a. would generally increase government tax revenue. b. would have no effect on aggregate demand. c. has a relatively small effect on the aggregate-supply curve. d. All of the above are correct.