Which of the following would most likely occur if the federal government increased its spending and enlarged the size of the budget deficit during a period of full employment?
A. The rate of inflation would decline.
B. The rate of inflation would rise.
C. A recession would develop.
D. Interest rates would fall.
Answer: B
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The existence of counterparty risk
A) has no effect on the contracting parties. B) is disallowed under current government regulations. C) results in information costs for buyers and sellers when analyzing the potential creditworthiness of potential trading partners. D) reduces the risk introduced by forward contracts.
If society leaves some of its resources unemployed, then it will be operating at a point:
a. beneath its production possibilities curve. b. at a corner of its production possibilities curve. c. anywhere along its production possibilities curve. d. outside of its production possibilities curve.