Once wartime spending is under way and production is diverted away from household consumption items and private investment goods,
(a) real Gross National Product will likely fall.
(b) the money supply will automatically increase.
(c) inflation will likely rear its ugly head if productivity
does not advance.
(d) production and employment will fall.
(c)
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Suppose there are only two people, Mr. Mullinax and Ms. Fleming, who must split a fixed income of $500. For Mr. Mullinax, the marginal utility of income is MU m = 600 - 2I m , while for Ms. Fleming, marginal utility is MU f = 600 - 3I f , where I m and I f are the amounts of income to Mr. Mullinax and Ms. Fleming, respectively.
(A) What is the optimal distribution of income if the social welfare function is additive? (B) What is the optimal distribution if society values only the utility of Ms. Fleming? What if the reverse is true? Comment on your answer. (C) Finally, comment on how your answers change if the marginal utility of income for both Mr. Mullinax and Ms. Fleming is constant such that Mu m = 250 = MU f . (This one is subtle.) The setup should be I m + I f = 500 and 600 - 3I f = 600 - 2I m
Deficit spending boosts aggregate demand.
Answer the following statement true (T) or false (F)