Which of the following are possible consequences when the government reduces government purchases to address an inflationary gap?
I. increase in the price of bonds
II. increase in net exports
III. decrease in the federal budget deficit (or increase the surplus)
IV. decrease in the exchange rate
A) I, II, III, and IV
B) I and III only
C) I, III, and IV only
D) II, III, and IV only
Ans: A) I, II, III, and IV
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All of the following are true regarding perfectly competitive price determination EXCEPT
A) the market price is determined by the interactions among all buyers (households) and firms. B) the individual firm takes the market price as given. C) the individual firm is known as a market price maker. D) the individual firm's marginal revenue curve is horizontal at the market price.
Because a type of fish is on the verge of extinction, the government imposes rules that prohibit fishing in the publicly spawned grounds. At first, owners of fishing boats complain about this restriction on where they can fish, but soon they notice that the number of adult fish swimming outside the protected area is much higher than it was before. With the restriction, each fishing boat ends up catching more fish than it did before the restriction was in place. Which of the following principles of economic interaction best describes this scenario?
A) Markets usually lead to efficiency.
B)There is a trade-off between equity and efficiency.
C) When markets do not achieve efficiency, government intervention can improve welfare.
D) Markets move toward equilibrium.