If the government increases spending without a tax increase and simultaneously no monetary policy changes are made, which of the following will most likely occur?
a) income would not rise at all because no new money in available for increased consumer spending
b) the rise in income may be greater than the multiplier would predict because the higher interest rates will stimulate investment spending
c) the rise in income may be smaller than the multiplier would predict because the higher interest rates will crowd-out private investment spending
d) income will go up by exactly the amount of the new government spending since this acts as a direct injection to the income stream
e) income will not go up unless taxes are cut as well
Ans: c) the rise in income may be smaller than the multiplier would predict because the higher interest rates will crowd-out private investment spending
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For a natural monopoly, if price is equal to marginal social cost, then
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You can drive from Kansas City to St. Louis in five hours. You can fly between both cities in two hours. The price of an airline ticket is $150. The cost of driving between the cities is $50. About what hourly wage would make the "full" cost of driving equal the "full" cost of flying, where "full" cost includes the value of time?
A. $17 B. $21 C. $29 D. $33