What is the Hotelling Principle? Have resource prices behaved as the principle predicts?
What will be an ideal response?
The Hotelling Principle states that the price of a nonrenewable natural resource will rise at a rate equal to the interest rate. In reality, resource prices have not behaved this way. In addition to interest rates, technology and cost of extracting the resources affect the price of resources and so in reality, the prices of nonrenewable natural resources have generally fallen during some past years and risen during others.
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Suppose an economy grows by 2.5 percent, the labor force rises by 3 percent, and capital rises by 1 percent. If capital takes 50 percent of real GDP and labor takes the other 50 percent of real GDP, then the growth in total factor productivity must be _____
a. 6.5% b. 4.5% c. 0.5% d. 6% e. 10%
The self-correcting property of the economy means that output gaps are eventually eliminated by:
A. increasing or decreasing potential output. B. government policy. C. decreasing inflation only. D. increasing or decreasing inflation.