A . Explain how public debt can crowd out private investment. b. Even if the crowding out effect does occur, explain the argument that crowding out does not necessarily undermine overall economic growth
a . If private firms must raise the interest rates they offer on their corporate bonds in order to remain
competitive when the government offers bonds for sale, then public debt makes it more costly to
finance private investment. Some private investment that would have occurred at lower interest rates
will no longer take place.
b. Although fewer private investments are made when crowding out occurs, this loss may be partially or
wholly offset by additional public investments that are funded by government borrowing.
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A perfectly competitive firm has no influence over price because: a. its output is insignificant relative to the market as a whole. b. antitrust laws constrain perfectly competitive firms
c. consumers establish the prices of products. d. it is unaware of the demand curve it faces.
The marginal benefit to you of drinking one more bottled iced tea is $1.50 . The price of a bottle of iced tea is $1.25. a. If you purchase iced tea you will suffer a net loss of 25 cents per bottle
b. If you purchase a bottle of iced tea, the net gain to you from doing so is 25 cents. c. You will not purchase iced tea if you are acting rationally. d. If you are acting rationally, you will purchase iced tea until the marginal benefit falls to 25 cents.