Briefly explain what effect a reduction in the saving rate will have on growth
What will be an ideal response?
A reduction in the saving rate will reduce investment, capital and output. During the adjustment process, the rate of growth of output will be negative. However, at some point, I, K and Y will no longer fall. So, the reduction in the saving rate will not have a permanent effect on the rate of growth of output.
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Refer to Scenario 16.2. Is the current distribution Pareto optimal?
A) Yes. B) No, as Sam could trade Sally a piece of candy for a tee shirt and both people would be better off. C) No, as Sam could trade Sally a tee shirt for a piece of candy and both people would be better off. D) Without the prices of each commodity it is impossible to determine if this distribution is Pareto optimal.
The word "util" has been used by economists in the past as an objective measure of utility. Today economists believe that
A) utility cannot be measured objectively. B) utility can be measured objectively because people can use prices of different goods to measure utility. C) all of the important conclusions of the economic model of consumer behavior depend on utility being measured objectively. D) the util truly is an objective, rather than a subjective, measure of utility.