The interest rate is the opportunity cost of transferring spending power between time periods. However, the market mechanism may fail to provide adequately for future economic growth. List the reasons why a market might fail
Baumol and Blinder list the following three reasons why there may be a failure:
1 . Government may manipulate the interest rate to achieve various objectives with little regard to the impact on investment for future growth.
2 . Persons may suffer from "a defective telescopic faculty"-they may not give adequate weight to the future and may wish to consume today instead of invest for tomorrow.
3 . Some decisions have irreversible consequences, such as destruction of a unique natural habitat. Once "developed," it is gone forever. It may be unwise to leave these decisions to purely profit-driven motives.
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In the short run, which of the following will reduce the gains from labor migration to the recipient nation?
a. Workers remit less than the value of their marginal products. b. Migrant workers have a declining marginal product so that the equilibrium wage is lower than MPs of earlier immigrants. c. Immigrants are low cost in terms of adjustment costs such as crime prevention, language assimilation, and few children enrolled in school. d. Workers remit more than the value of their marginal products.
An economic expansion rather than a recession occurs
A) when the federal budget is balanced. B) when the unemployment rate falls below 5 percent. C) when growth in real GDP is positive. D) when the unemployment rate is not changing.