A production possibilities curve graphically represents the maximum quantities of two products produced when all resources in the economy are being used efficiently. If an economy operates at a point inside its production possibilities curve,
a. it lacks the resources necessary to produce at full employment.
b. it is utilizing some resources inefficiently.
c. it does not confront the problem of scarce goods relative to unlimited wants.
d. it does not exist in the real world since it is impossible for an economy to operate inside its production possibilities curve.
B
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When private expenditures decrease as a result of increased government spending, this is known as
A) the multiplier effect. B) the stabilizer effect. C) government deficit spending. D) the crowding out effect.
Most economists would agree that, unless it incorporates rational expectations or something like it, a model cannot account for
A) the Great Depression. B) shifts in aggregate supply. C) the relationship between consumption and income. D) the stagflation of the 1970s. E) the different initial impact of a permanent versus a temporary policy change.