Suppose everyone in a small town decided to save more and spend less. How will this affect an economy?
a. It will decrease the overall level of income, since one person’s spending is someone else’s income.
b. It will have no impact, since a small town makes up a small portion of an economy.
c. It will cause the prices of many goods to increase.
d. It will increase the overall level of income, since other groups will spend more.
Answer: b. It will have no impact, since a small town makes up a small portion of an economy.
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Suppose Ernie gives up his job as financial advisor for P.E.T.S., at which he earned $30,000 per year, to open up a store selling spot remover to Dalmatians. He invested $10,000 in the store, which had been in savings earning 5 percent interest. This year's revenues in the new business were $50,000 . and explicit costs were $10,000 . Calculate Ernie's accounting profit
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