State the fundamental identity of national income accounting. Why is it not possible for this identity to be violated?
What will be an ideal response?
Total production = Total expenditure = Total income. The national income accounts measure economic activity. Any way it's measured, it's the same thing: economic activity. Each specific activity is a good or service that has been produced, has a market value (actual or imputed), and generates income for someone. An individual who produces ten dollars of market value does so in order to receive ten dollars of income, which arrives as the customer's ten dollar expenditure.
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Starting from long-run equilibrium, a war that raises government purchases results in ________ output in the short run and ________ output in the long run.
A. lower; potential B. higher; potential C. higher; higher D. lower; higher
Which of the following is NOT considered a consumption good?
A) Nike swimming trunks B) marriage counseling services C) a UPS truck D) a Subway sandwich E) a U.S. government bond
If a firm's output more than doubles when all inputs are doubled, production is said to occur under conditions of
A) increasing returns to scale. B) imperfect competition. C) intra-industry equilibrium. D) constant returns to scale E) decreasing returns to scale.
Consider a world with two income earners and an income tax. Individual A earns $25,000 and pays $1,000 in taxes. Individual B earns $100,000 and pays $3,000 in taxes. Which of the following best classifies the income tax system in this world?
a. proportional b. progressive c. regressive d. consumption