If total spending is less than the total production of goods and service, all th
ID: 1240601 • Letter: I
Question
If total spending is less than the total production of goods and service, all the goods produced can be cleared from the market bya. raising prices
b. accumulating inventories
c. lowering prices
d. reducing inventories
At any given time,
a. planned investment equals planned saving
b. planned investment equals actual investment
c. planned saving equals actual saving
d. actual investment equals actual saving
In the circular flow, services rendered by the resource owners are compensated through payments of wages, rent, interest, and profits.
True
False
Total output and the price level may decline simultaneously.
True
False
A deficit federal budget always raises prices.
True
False
Explanation / Answer
c. lowering prices b. planned investment equals actual investment True True TRUE ( Adopting Olivier Blanchard's formulation it is assumed that due to the probability of finite life individuals behave as if their horizon was finite. This formulation generates asimple pattern of aggregate behavior of the two-country world, and it assures that the model is not subject to the Ricardian proposition according to which budget deficits do not matter. It is shown that, for a given time path of government spending, a budget deficit raises world rates of interest and domestic wealth while it lowers foreign wealth. Thus, the deficit is transmitted negatively to the rest of the world. The channel of transmission is the world capital market and the negative transmission results from the higher rate of interest. )