How do economic profits and losses allocate resources in an economy?
What will be an ideal response?
When positive economic profits exist in an industry, resources flow to that industry because of the profits available. This behavior causes resources to flow from less productive uses to more productive uses. That is, businesses seek to improve their profits and in so doing, they move resources into the production of goods and services that society values the highest. Similarly, when firms face economic losses, they exit the industry and put their resources to more profitable uses. Again, this allocates resources to industries that produce goods and services that society values the highest.
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An indirect effect of an increase in the price level works through
A) changes in trade balances as domestic goods become more expensive, causing interest rates to move in the opposite direction from the change in the exchange rate. B) interest rates as people save more as the higher prices make their money balances less attractive. C) people substituting out of domestic goods and into foreign goods as exchange rates rise. D) interest rates as people borrow to maintain their money balances, bidding up interest rates and reducing total planned real expenditures.
Refer to Table 15.2. From the information presented in the table, calculate the following values for the nation of Harmonia in 2012: a. the budget deficit b. the primary budget deficit c. the uses of government funds d
the sources of government funds