Macro-economic recessions, like the one in 2008 – 09, are often related to the fact that consumers consume less of many of the goods they typically consume, even if the price level does not change significantly. Relate this behaviour to the budget line and indifference curves studied in this chapter, and justify your answer with graphs.
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Macro-economic recessions, like the one in 2008 – 09, are often related to the fact that consumers consume less of many of the goods they typically consume, even if the price level does not change significantly. Relate this behaviour to the budget line and indifference
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- The law of Time Preference tells us that A. People always value a good available in the near future more highly than an equal quantity of the same good available in the more remote future, all other things equal B. People prefer a greater quantity of a good to a lesser quantity of the same good C. People will always choose the shortest processes of production D. People will always devote more of their resources to consumption than to investment, all other things equal“Diminishing MRS reflects the notion that people prefer balance in their consumption choices.” True or False. Explain your answer. (2 + 3 points)What common rule of thumb do economists use to define a recession? A decline of 5% in GDP A decline of 10% in GDP One quarter of negative GDP growth Two quarters (six months)of negative GDP growth
- According to neoclassical theory, compensating consumers for inflation as measured by a base year weighted index can overcompensate them because: A some goods may be inferior B relative prices may not have changed C some goods may give disutility D goods are substitutable in consumer preferencesNeoclassical economics does NOT argue _______ Question 1 options: GDP is determined by supply factors such as resources and technology, not aggregate demand government regulation is generally good for the overall economy the market system has the self-adjusting mechanism that fixes unemployment and recession in the long run as long as wages, prices, and interest rates are flexible raising minimum wage generally creates unemploymentCompare and contrast the use of government spending changes versus tax changes as a means of influencing the course of the economy. Is one or the other preferable in specific situations? What are the short-run and long-run implications? What solutions do you recommend? (Think beyond the scope of the video and keep it to economical thought.) What would a Neoclassical economist say about your solutions? What would a Keynesian economist say about your solutions? Apply economic theories and models to support your response
- What policies will a Neoclassical Economist tell the government to enact in order to foster a healthy economy? a) The government should increase production output through regulating sales of resources and strictly monitor exports and imports. b) The government should implement the COLA to improve the economy c) The government should set up and regulate wages and unions, and set price floors and ceilings for specific fundamental goods. d) The government should keep inflation low and maintain low tax levels over the long run.According to the basic discounting principle, individuals value current consumption (i.e. consumption now) more than future consumption (i.e. consumption tomorrow). A) True B) FalseConsider the following intertemporal consumption problem with one good and two periods. The quantity of the good consumed in period 1 and period 2 are q1 and q2. The price of each unit of the good is $1 in both periods. The consumer’s income is I1=10 in the first period and I2=12 in the second period. The consumer can borrow or save money at the interest rate of 50%, that is, r=0.50. The consumer’s utility function is u(q1,q2)= q1q2. The optimal choice of q1 is a. 9 b. 10 c. 11 And the consumer will: d. borrow 1 e. save 1 f. borrow 2 g, save 0
- In the neoclassical Supply and Demand model, what is meant by shortage? Group of answer choices Making a bet that the value of a stock will go down. At the existing price, the quantity demanded exceeds the quantity supplied. At the existing price, quantity supplied exceeds the quantity demanded. A decrease in quantity demanded.Since 1950, expansions in the United States have become ________, while recessions have become ________. longer; longer shorter; shorter shorter; longer longer; shorterSuppose the economy has fallen into a severe recession. From a macroeconomic theory point of view which of the following is an appropriate government policy? reduce government spending balance the Federal budget increase government spending on goods and services increase taxes on capital gains