An economy can produce various combinations of food and shelter along a production possibilities curve (PPC). We first increase the production of shelter along the PPC. If we then continue to shift more and more production to shelter, then which of the following will most likely happen to the opportunity cost of a unit of shelter?
a. Opportunity cost must stay constant if we are to stay on the production possibilities curve.
b. Opportunity cost will increase because as more and more shelter is produced, labor and capital that is highly productive at producing food is being shifted to shelter production, and so more and more food is being given up to produce a unit of shelter.
c. Opportunity cost includes all options given up to produce shelter.
d. Opportunity cost is the amount of labor (but not capital) that is used to produce the extra shelter.
b
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Which of the following actions could be undertaken if the government wants to reduce an inflationary gap?
A) Increase taxes and reduce government spending. B) Reduce taxes and increase government spending. C) Increase taxes and increase government spending. D) Reduce taxes and reduce government spending.
The demand for money
a. is the same as the demand for bonds b. is the same as the supply of bonds c. increases whenever the price level falls d. reflects the constraints that people face e. shows the people always demand as much money as possible