Your roommate argues that he can think of no better situation than living in a deflationary economy, as prices of goods and services would continuously fall. You disagree and argue that during a deflation, people can be made worse off because
A) the purchasing power of the currency would decrease.
B) the value of the real interest rate will drop below the nominal interest rate.
C) borrowers will have to pay increasing amounts in real terms over time.
D) the purchasing power of people's incomes would increase.
C
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To achieve allocative efficiency, one must compare the
A) marginal cost of a good to its opportunity cost. B) opportunity cost to the attainable point on the production possibilities frontier. C) marginal benefit of a good to its marginal cost. D) marginal cost to the production efficiency cost. E) point of production efficiency to the point of allocative efficiency.
An example of expansionary fiscal policy is
A) an increase in government spending, or an increase in taxes, or both. B) a decrease in government spending, or a decrease in taxes, or both. C) an increase in government spending, or a decrease in taxes, or both. D) a decrease in government spending, or an increase in taxes, or both. E) holding government spending constant while increasing taxes.