What two factors affect the legal-institutional environment? Discuss the effect of changes in the legal-institutional environment on aggregate supply.
What will be an ideal response?
Included as factors related to the legal-institutional environment are business taxes and business subsidies, and government regulation. If business taxes increase, business subsidies decrease, or government regulations increase, these changes increase the cost of doing business. As a consequence, aggregate supply will likely decrease. If business taxes decrease, business subsidies increase, or government regulations decrease, these changes decrease the cost of doing business. As a consequence, aggregate supply will likely increase.
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For a government subsidy on a good with an external benefit to result in the efficient amount of output being produced, what must be done?
A) The size of marginal external benefit must be accurately determined. B) The government must produce the product. C) Private production and private consumption must both be directly subsidized. D) The quantity demanded must be decreased to the efficient amount. E) Private production without the subsidy must be prohibited.
The model: y* = 
0? + x
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2) and y = max(0, y*) represents a:
A. ARCH model.
B. GARCH model
C. Tobit model
D. logit model