Explain why the budget deficit and the trade deficit are sometimes referred to as the "twin deficits."
What will be an ideal response?
When the government runs a budget deficit, the government is spending more than it is receiving in net taxes. As the government reduces its saving, the interest rate will rise. With higher interest rates, firms will reduce domestic investment, capital outflows will fall, and capital inflows will rise. As a result, net foreign investment will also fall. Since net foreign investment is equal to net exports, as net foreign investment falls, so will net exports.
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Mikki decides to work five hours the night before her economics exam. She earns an extra $75, but her exam score is 10 points lower than it would have been had she stayed home and studied. Her opportunity cost is the:
a. five hours she worked. b. $75 she earned. c. 10 points she lost on her exam. d. time she could have spent watching television. e. guilt she feels about neglecting her economics studies.
The differences between a competitive market and a monopoly include all of these except:
a. excess profits would be competed away in a competitive market, but persist in a monopolistic market b. a competitive market would work toward production of the quantity consumers seek, while a monopolistic market may restrict output to raise short term prices c. a competitive market's cost curves will shift with the market, while a monopoly's cost curves will remain stable d. a competitive market would work toward production of the quantity consumers seek, while a monopolistic market may restrict output to raise long term prices